Choosing between a fixed or variable rate mortgage is one of the biggest financial decisions you’ll make.
It affects not just your monthly payments but your long-term financial plan as well. With today’s shifting interest rates and economic uncertainty, this choice becomes even more significant for UK homebuyers and property owners.
Many borrowers feel torn – the security of a fixed rate seems appealing, but the potential savings from a variable rate can be tempting.
The UK mortgage market currently leans heavily toward fixed rates, with about 89% of new mortgages being fixed. However, variable options are gaining renewed interest as market conditions change.
There’s no perfect answer that works for everyone. Your best choice depends on your financial situation, future plans, and comfort with risk.
This guide will walk you through the differences, benefits and drawbacks of each option, helping you make a confident decision that fits your unique circumstances.
What Are Fixed and Variable Rate Mortgages?
Before weighing up which mortgage type might suit you best, let’s get clear on what each one actually means and how they work.
Fixed Rate Mortgages
A fixed rate mortgage locks in your interest rate for a set period, usually between 2 and 10 years. During this time, your monthly payments stay exactly the same, regardless of what happens to interest rates in the wider economy.
For example, if you borrow £500,000 on a 5-year fixed rate at 4.5%, your monthly payment might be around £2,779 (on a 25-year term). This payment won’t change for five years, giving you certainty for budgeting.
In the UK, the most common fixed periods are 2, 5, and 10 years, with 5-year fixes becoming increasingly popular. Some lenders also offer 3-year and 7-year options, though these are less common.
Once your fixed period ends, your mortgage automatically switches to the lender’s Standard Variable Rate (SVR) unless you remortgage to a new deal.
The SVR is almost always higher than the fixed rate you’ve been paying, which is why most borrowers look to secure a new deal when their fixed term expires.
Read more: Our Guide to Fixed Rate Mortgages
Types of Variable Rate Mortgages
Variable rate mortgages come in several different forms, all sharing one key feature – the interest rate can change during your mortgage term.
Standard Variable Rate (SVR) is the default variable rate set by each lender.
Lenders can raise or lower this rate whenever they choose, though they often change it following Bank of England base rate adjustments. SVRs tend to be higher than other rates, and most borrowers end up on them only temporarily after their fixed rate ends.
Tracker Mortgages follow an external interest rate (usually the Bank of England base rate) plus a set margin.
For instance, if your tracker is “base rate + 1%” and the base rate is 4.25%, your mortgage rate would be 5.25%. If the base rate changes to 4.5%, your rate automatically adjusts to 5.5%. Trackers usually run for terms of 2-5 years, though some ‘lifetime trackers’ last the full mortgage term.
Discount Mortgages offer a discount off the lender’s SVR for a set period.
For example, if the SVR is 7% and you have a 2% discount, your rate would be 5%. However, if the lender raises their SVR to 7.5%, your rate would increase to 5.5%.
There are also less common options like capped rate mortgages, which are variable but with an upper limit on how high the rate can go.
Read more:
How Each Option Works in Practice
Understanding the theory is one thing, but how do these different mortgage types affect your finances in real life?
Let’s look at some practical examples.
Fixed Rate Mortgage in Action
Sarah and James are first-time buyers purchasing a £650,000 home in Bristol with a £500,000 mortgage. They opt for a 5-year fixed rate at 4.5% with a 25-year term.
Their monthly payment is £2,779, and they know it won’t change for the next five years. This certainty helps them budget confidently for other expenses like home improvements and starting a family.
However, this security comes with some trade-offs.
Their mortgage has early repayment charges (ERCs) of 5% in year one, gradually reducing to 1% in year five. When Sarah gets a bonus at work, she can only overpay 10% of the outstanding balance each year without triggering these charges.
If they need to move house during the fixed term, they have two options:
- Take the mortgage with them (called ‘porting‘)
- or pay the early repayment charge to exit the deal early
When their fixed term ends, they’ll need to remortgage or choose a product transfer with the same lender.
If they do nothing, they’ll move onto their lender’s SVR, which could mean a significant payment jump.
Three months before their fixed rate ends, they’ll start researching new deals to switch to.
Read more: Can you move home with a fixed rate mortgage?
Variable Rate Mortgage Scenarios
Mark has a £500,000 tracker mortgage on his London flat, set at 1% above the Bank of England base rate.
When he took out the mortgage, the base rate was 3.5%, so his initial rate was 4.5%.
Six months later, the Bank of England increased the base rate to 4.5%, and Mark’s rate rose to 5.5%. His monthly payment increased from £2,779 to £3,073 – almost £300 more per month.
However, unlike with a fixed rate, Mark has no early repayment charges, so when he receives an inheritance, he can make a substantial overpayment, reducing both his balance and monthly payments.
If Mark had chosen an SVR mortgage instead, his rate might have started higher, at around 6.5%, but when the Bank of England raised rates, his lender might have increased their SVR by only 0.75%, not the full 1%.
The downside is that the lender could choose to increase rates even when the Bank of England doesn’t.
The key takeaway is that variable rates offer flexibility but require financial breathing room to handle potential payment increases.
Comparing Costs and Benefits
When weighing up fixed versus variable rate mortgages, looking beyond the headline interest rate is essential.
The True Cost Comparison
The actual cost of a mortgage includes more than just the interest rate. Most mortgages come with additional fees that can significantly impact the total cost:
For a £500,000 mortgage, a product with a slightly higher interest rate but no arrangement fee might work out cheaper overall than one with a lower rate but a £1,500 fee. To make an accurate comparison, look at the Annual Percentage Rate of Charge (APRC), which includes most fees and charges.
Fixed rate mortgages often come with higher arrangement fees than variable options. On a £500,000 mortgage, you might pay £999-£1,499 for a fixed deal compared to £499-£999 for a variable one.
Let’s look at a real example:
On a £500,000 mortgage with a 25-year term, a 2-year fixed rate at 4.75% with a £999 fee would cost approximately £137,475 over those two years. A tracker at 4.5% (assuming no rate changes) with a £499 fee would cost about £130,809 – a saving of over £6,600. But if the tracker rate rose by 1% after six months, the total cost would increase to about £136,940, nearly matching the fixed rate.
Remember that these calculations assume you stay with the same product for the full term – in reality, most people remortgage at the end of their initial deal period.
Flexibility vs Security Trade-off
The choice between fixed and variable rates often comes down to what you value more: certainty or flexibility.
Fixed rates provide payment security.
You’ll know exactly what you’ll pay each month for the fixed term, making budgeting easier. However, this security comes with restrictions – most fixed deals limit overpayments to 10% of the outstanding balance per year and charge early repayment fees if you want to exit early.
Variable rates offer greater flexibility.
Most have no early repayment charges, allowing unlimited overpayments or even full repayment without penalties. This flexibility can be valuable if you expect to come into money (through inheritance, bonuses, or selling another property) or if you might need to move or sell unexpectedly.
Who Should Choose Each Option?
Different mortgage types suit different borrowers.
Your financial situation, future plans, and personal preferences all play a role in which option might work best for you.
Ideal Candidates for Fixed Rate Mortgages
Fixed rate mortgages tend to work well for:
First-time buyers often benefit from the security of fixed payments. When you’re just getting used to the costs of homeownership, knowing exactly what your biggest monthly outgoing will be provides valuable peace of mind.
Lucy, a first-time buyer in Manchester, chose a 5-year fixed rate for her flat purchase despite slightly higher initial costs because she wanted certainty while establishing her career.
Those on tight budgets or with limited income growth prospects may find the payment security of a fixed rate essential for financial stability. If an unexpected payment increase would cause real hardship, fixing your rate makes sense.
Risk-averse borrowers who value certainty over potential savings often prefer fixed rates. Many people are willing to pay a slight premium for the comfort of knowing their payments won’t change, regardless of what happens in the wider economy.
Those planning to stay in their home for the medium to long term might want to lock in a rate that matches their expected stay. If you’re settling into a family home for at least 5-10 years, a longer-term fixed rate could provide extended security, especially if you find a competitive rate.
When Variable Rates Make More Sense
Variable rate mortgages might be the better choice for:
Those expecting to move or sell within a few years might benefit from the flexibility of a variable rate.
Without early repayment charges, you’re free to sell or remortgage whenever needed. James, a contractor who moves between projects every few years, chose a tracker mortgage for this exact reason.
Borrowers who can comfortably afford higher payments if rates rise can take advantage of the potentially lower starting rates of variable mortgages. Having this financial cushion lets you benefit when rates are low while weathering any increases.
Those looking to make substantial overpayments will appreciate the unlimited overpayment allowance of most variable mortgages. If you’re expecting an inheritance, regular bonuses, or have an irregular but high income, this flexibility can help you reduce your mortgage much faster.
Property investors often choose variable rates because they’re treating the mortgage as one part of a larger investment strategy. Many landlords prioritise cash flow flexibility over payment certainty, particularly when managing multiple properties.
Your credit score can also influence your options. While a lower score doesn’t automatically disqualify you from either type, you might find fewer fixed rate options available, or the rates offered may be higher.
Common Misconceptions
Several misunderstandings can lead borrowers to make choices that don’t serve them well:
Many people assume fixed rates are always more expensive than variable rates.
While fixed rates often start higher, this isn’t always the case – sometimes fixed deals can be found at similar or even lower rates than variable options, particularly when lenders are competing for business.
Another common belief is that variable rates always save money in the long term. While there have been periods when this was true, it’s not a reliable rule. If rates rise significantly, variable rate borrowers can end up paying considerably more than those on fixed deals.
Many borrowers think longer fixed terms are always better value.
This may be the case, but in reality, the best term length depends on your circumstances. A 10-year fix might offer great rate security, but if you need to end the mortgage early, the hefty early repayment charges could outweigh any savings.
Some assume you can easily switch between products if your circumstances change. In reality, remortgaging before your current deal ends incurs substantial charges, and your ability to secure a new mortgage depends on your financial situation and the market at that time.
Consider the case of Michael, who took a 2-year fixed rate in 2021 because rates were at historic lows and he believed they couldn’t go lower. He planned to switch to a variable rate afterwards to benefit when rates inevitably fell. Instead, rates rose sharply, and when his fix ended, he faced much higher rates on both fixed and variable options.
Making Your Decision
With so many factors to consider, how do you decide between fixed and variable rate mortgages? Here’s a helpful approach to help you make a choice that’s right for your situation.
Assessing Your Risk Tolerance
Start by honestly evaluating how comfortable you are with financial uncertainty:
Review your budget to understand how much flexibility you have. Could you afford an extra £300-£500 per month if rates increased? If a payment rise would immediately cause financial stress, you might be better off with a fixed rate.
Think about your attitude to risk in other areas of your finances.
Do you prefer safe, predictable investments, or are you comfortable with some volatility for potentially better returns? Your mortgage choice should align with your overall risk tolerance.
Try a simple assessment: If rates increased by 2%, taking your mortgage payment from £2,500 to £3,050 per month, would you:
- lie awake worrying about it?
- cut back on some expenses to manage it?
- absorb it fairly comfortably?
Your answer gives a good indication of your risk tolerance.
Matching Mortgage Type to Life Plans
Your life plans for the next 2-5 years should heavily influence your mortgage choice:
If you’re planning major life changes like starting a family, changing careers, or going back to education, the payment certainty of a fixed rate might be valuable during these transitions.
If you expect your income to increase significantly through career progression or business growth, a variable rate might allow you to benefit from the flexibility to make overpayments as your earnings grow.
Consider your property plans as well.
If you might want to move home, downsize, or buy an additional property within the next few years, the flexibility of a variable rate could save you from early repayment charges.
For example, Emma and John are expecting their first child and Emma plans to reduce her working hours. They chose a 5-year fixed rate for security during this significant life change. Meanwhile, their friends Sarah and David, who are both in careers with strong growth prospects and might need to relocate for work, opted for a tracker mortgage for its flexibility.
Remember that life is unpredictable – even with the best planning, circumstances can change unexpectedly. Factor in some flexibility if possible.
Related:
How a Mortgage Broker Can Help
A good mortgage broker offers access to the whole market, including products not available directly to consumers.
While high-street banks might only offer their own products, a broker can compare options from over 100 lenders to find the best fit for your circumstances.
Brokers also bring expert knowledge of lender criteria.
They know which lenders are more likely to accept your application based on your income type, credit history, and property type. This can be particularly valuable if you’re self-employed, have complex income, or are looking at a non-standard property.
For the fixed versus variable decision specifically, a broker can provide personalised analysis based on your financial situation and future plans.
They can run scenarios showing how different rate changes might affect your payments and help you understand the true cost of different options over time.
Consider James and Lisa, who were torn between a 2-year fix and a tracker mortgage. Their broker showed them that while the tracker started £73 per month cheaper, even a modest 0.75% rate rise would make it more expensive than the fixed option. Given their tight budget and preference for certainty, the broker recommended the fixed rate.
Brokers can also help with timing your application. They understand market trends and can advise on whether it might be worth waiting for new products or acting quickly to secure a current deal before it’s withdrawn.
Most importantly, a broker provides ongoing support. Your mortgage needs will change over time, and a good broker will stay in touch, letting you know when it’s time to review your options and helping you adapt your mortgage strategy as your life changes.
Next Steps
Whatever mortgage type you’re leaning toward, there are practical steps you can take to move forward with confidence.
Start by gathering key documents. Lenders will want to see proof of identity, address history, income (pay slips or accounts if self-employed), and recent bank statements. Having these ready will speed up any application.
Check your credit report before applying. You can access this for free from credit reference agencies like Experian, Equifax or TransUnion. Look for any errors and address them before applying.
Use online calculators to get a rough idea of how much you might be able to borrow based on your income and outgoings. Remember that these are just estimates – lenders’ actual criteria can vary significantly.
If you’re still unsure which mortgage type is right for you, consider speaking with a mortgage broker who can provide personalised advice based on your specific situation. They can also help you understand which lenders might offer the most competitive deals for your circumstances.
For those with an existing mortgage coming to the end of its initial term, start looking at options about 3-6 months before your current deal expires. This gives you plenty of time to compare offers and complete an application before you move onto the potentially higher SVR.
If you’re set on a fixed rate, pay attention to rate trends and be prepared to act when good deals appear, as these can be withdrawn at short notice.
For those considering a variable rate, make sure you’ve stress-tested your budget for potential rate increases to ensure you can comfortably afford higher payments if rates rise.
Choosing between a fixed and variable rate mortgage is a personal decision that depends on your financial circumstances, future plans, and attitude toward risk.
Fixed rates offer peace of mind through payment certainty, while variable rates provide flexibility and potential savings.
The right choice for you might be different from what works for others. Consider not just today’s rates but how your choice will affect your finances over the coming years. Think about your plans, your budget flexibility, and how comfortable you are with uncertainty.
Remember that the mortgage market is constantly evolving, and what makes sense today might need reconsideration in a few years. Many borrowers switch between fixed and variable products at different times as their circumstances and the wider economy change.
If you’re uncertain, seeking professional advice from a mortgage broker can help clarify your options and identify the best solution for your situation. They can provide the expertise and market knowledge to support you in making this significant financial decision with confidence.
Frequently Asked Questions
Yes, but it usually comes at a cost.
Most fixed rate mortgages have early repayment charges (ERCs) during the fixed period, typically between 1-5% of the outstanding loan amount. On a £500,000 mortgage, this could mean paying £5,000-£25,000 to exit early, so it’s rarely financially beneficial unless rates have dropped dramatically.
When your fixed rate period ends, your mortgage will automatically switch to your lender’s Standard Variable Rate (SVR), which is almost always higher than your fixed rate.
Most borrowers choose to remortgage to a new deal (either with the same lender or a different one) around 3-6 months before their fixed rate expires.
Yes, most fixed rate mortgages allow overpayments of up to 10% of the outstanding balance each year without incurring early repayment charges (check first!).
If you want to overpay more than this, you might face penalties. Variable rate mortgages typically allow unlimited overpayments without penalties.
Read more: Should I overpay my mortgage?
A tracker rate is directly linked to an external interest rate (usually the Bank of England base rate) plus a set margin (e.g., base rate + 1%). It automatically changes when the base rate changes.
An SVR is set by the lender themselves and can change at their discretion – they often change following base rate adjustments but not always by the same amount or at the same time.
Most fixed rate mortgages are ‘portable’, meaning you can transfer the mortgage to a new property if you move, subject to the lender’s approval of the new property. If you need to borrow more, the additional amount would typically be on a new deal.
If you can’t port the mortgage for any reason, you’d face early repayment charges to end the deal early.
If interest rates fall while you’re on a fixed rate, you won’t benefit from lower payments – your rate and payment remain unchanged for the fixed term.
This is the trade-off for the security of knowing your payments won’t increase if rates rise. You could consider remortgaging to a lower rate, but would need to weigh this against any early repayment charges and associated mortgage fees.
