Fixed, Variable, and Tracker Mortgages Explained

The next big decision

Once you’ve got your deposit together, the next big decision is what kind of mortgage rate to choose. Lenders offer a genuinely confusing range of products, but almost all of them fall into one of three families: fixed, variable, and tracker.

Each works differently, suits different circumstances, and carries a different level of risk. This guide breaks down exactly how each one works, with worked examples so you can see the real pounds-and-pence difference.

Fixed-Rate Mortgages

How a Fixed Rate Works

A fixed-rate mortgage locks your interest rate for an agreed period — most commonly two or five years, though three and ten-year fixes are also available. Whatever happens to the Bank of England base rate or the wider market during that time, your rate, and therefore your monthly payment, stays exactly the same.

As of mid-2026, the average two-year fixed rate sits at around 5.6%, with five-year fixes priced similarly, at roughly 5.7%, though the cheapest deals for borrowers with a larger deposit can come in well below 4.5%.

Worked Example: Payments on a £200,000 Mortgage

On a £200,000 repayment mortgage over 25 years, a fixed rate of 5.6% works out to a monthly payment of roughly £1,240. Fix that rate for two years, and you know exactly what you’ll be paying every month for the next 24 payments, regardless of what happens in the wider economy. Compare that to a borrower who ends up on their lender’s standard variable rate of around 7.1% on the same mortgage — their monthly payment would be closer to £1,440, around £200 a month more, or roughly £2,400 a year.

Two-Year vs Five-Year Fixes

Choosing between a two-year and a five-year fix is really a question about how confident you feel in your circumstances and in where rates are heading.

A two-year fix gives you the flexibility to review your options sooner, which suits buyers who expect their situation to change — a pay rise, a house move, or simply a hope that rates will have fallen by the time they re-mortgage.

A five-year fix trades that flexibility for a longer stretch of certainty, and can suit buyers who want to plan their household budget several years ahead without worrying about the next re-mortgage.

Why Certainty Comes at a Price

That certainty is valuable, but it isn’t free. Lenders price fixed rates using swap rates — essentially, the cost of borrowing money in the financial markets for a fixed period — rather than the base rate directly, which is why fixed rates sometimes move before the Bank of England makes any announcement at all.

Lenders build a margin into fixed rates to protect themselves against future rate rises, so a fix isn’t always the cheapest option available at any given moment — it’s the most predictable. If you value knowing exactly what you’ll pay each month, and want protection against rates climbing during your term, a fix is usually the more comforting choice, especially for first-time buyers stretching their budget to the limit.

Variable-Rate Mortgages

Standard Variable Rate (SVR) Explained

Every lender has a Standard Variable Rate, which is the default rate you’re moved onto once a fixed, tracker, or discount deal comes to an end. Unlike a fix, the SVR isn’t tied to any external benchmark — the lender can raise or lower it whenever they choose, based on their own funding costs and commercial decisions.

In 2026, average SVRs sit around 7.1% to 7.2%, noticeably higher than most fixed or tracker deals, and individual lenders can vary considerably either side of that average, so it’s always worth checking your specific lender’s current rate rather than assuming a national figure applies.

Discount Variable Rates

A discount variable rate mortgage is a specific type of variable deal that tracks the lender’s own SVR at a set discount — for example, 1.5 percentage points below it — for an introductory period, typically two or three years. If the lender’s SVR rises or falls, your rate moves with it, still maintaining the same discount.

These can offer competitive short-term pricing, but because they’re tied to the lender’s SVR rather than the base rate, the lender still has some discretion over how the underlying rate moves, which makes discount deals a little less transparent than a tracker.

Worked Example: Falling Onto the SVR

Imagine a borrower coming to the end of a five-year fix taken out at 2.5% back in 2021. If they do nothing, they’ll automatically roll onto their lender’s SVR of around 7.1%. On a remaining £180,000 balance, that could mean their monthly payment jumping from roughly £807 to around £1,300 — an increase of nearly £500 a month, simply for failing to arrange a new deal in time.

Multiply that across the estimated 1.8 million fixed-rate deals expiring in 2026, and it’s clear why re-mortgaging before your current deal ends is one of the most important habits for any homeowner.

Tracker Mortgages

How Trackers Follow the Base Rate

A tracker mortgage moves in direct line with the Bank of England base rate, typically set at a fixed margin above it — for example, base rate plus 0.75%. With the base rate currently at 3.75%, a tracker priced at base rate plus 0.75% would give a pay rate of 4.5%.

Unlike a discount variable rate, the lender has no discretion here: if the base rate moves, your rate moves by exactly the same amount, usually within a month, since the margin above base rate is fixed for the life of the deal.

The Upside and Downside of Following the Base Rate

Trackers can work brilliantly when the base rate is falling, since your payments drop automatically without needing to re-mortgage. The flip side is equally real: if the Bank of England raises rates to combat inflation, your payments rise immediately too, with no cap unless your particular product includes one.

Some trackers come with a ‘collar,’ a minimum rate below which they won’t fall, so it’s worth checking the small print rather than assuming unlimited downside protection. A small number of lenders also offer ‘lifetime’ trackers, which run for the full mortgage term rather than two or five years, and often carry no early repayment charge at all.

Worked Example: A Base Rate Change

Take a £200,000 tracker mortgage priced at base rate plus 0.75%, currently paying 4.5%. If the Bank of England were to cut the base rate by 0.25 percentage points, your rate would fall to 4.25%, saving you around £30 a month on a 25-year term.

If, instead, the base rate rose by the same amount, your payment would climb by a similar sum. Over a two-year tracker deal, several base rate movements in either direction are entirely possible — the Bank’s rate-setting committee meets roughly every six weeks — which is why trackers suit borrowers who can comfortably absorb some payment fluctuation.

Capped Rate Mortgages

A Middle Ground Between Fixed and Tracker

Less common than the three main types, a capped rate mortgage is a variable or tracker-style deal with a built-in ceiling: your rate can move up and down with the market, but it will never rise above an agreed maximum.

This gives you some of the potential benefit of a falling rate environment, while still protecting you from the worst-case scenario of a sharp rate rise.

Where the Trade-Off Lies

The catch is that capped deals are usually priced with that protection already built in, meaning the starting rate is often higher than a comparable tracker or discount deal without a cap.

They tend to appeal to borrowers who want a partial safety net without committing to the full certainty — and cost — of a fixed rate, but they remain a niche option compared with the big three.

Comparing the Three Side by Side

Predictability vs Flexibility

• Fixed rates offer the most predictability but the least flexibility if rates fall, since you’re locked in regardless of what happens elsewhere in the market.
• Trackers offer the opposite: full exposure to rate movements in both directions, with no ability to shield yourself if the base rate climbs.
• Variable and discount deals sit somewhere in between, moving with the lender’s own SVR rather than a transparent external benchmark, which means you’re trusting the lender’s pricing decisions rather than a published rate.

Early Repayment Charges

Fixed and tracker deals typically come with an early repayment charge (ERC) if you leave before the end of the agreed term — commonly a sliding scale, such as 5% in year one of a five-year fix, dropping to 1% by year five.

On a £200,000 mortgage, an ERC of 3% would cost £6,000 to exit early. Standard variable rate mortgages, by contrast, usually carry no ERC at all, since there’s no fixed term to break — though the trade-off, as we’ve seen, is a considerably higher rate while you’re on it.

It’s always worth checking your mortgage offer document for the exact ERC schedule before assuming you can switch freely.

Overpayments and Flexibility

How Much You Can Overpay

Most fixed and tracker deals allow you to overpay by up to 10% of the outstanding balance each calendar year without triggering an early repayment charge.

On a £200,000 mortgage, that’s up to £20,000 a year you could put toward reducing your loan faster, cutting both the term and the total interest paid, without breaching your deal’s terms.

Why This Matters When Choosing a Deal

If you expect to come into extra money during your fixed term — a bonus, an inheritance, or simply the ability to save aggressively — checking the overpayment allowance before you commit to a deal is worth the five minutes it takes.

Some lenders are more generous than others, and a handful offer fully flexible mortgages with no overpayment cap at all, though these tend to come with a slightly higher headline rate in exchange for that flexibility.

Which Type Suits Which Borrower

First-Time Buyers and Tight Budgets

If your monthly budget is already stretched to its limit, a fixed rate is usually the safer starting point. Knowing your payment won’t change for two or five years removes one major source of financial uncertainty while you settle into homeownership, and most first-time buyer deals in 2026 are priced as fixes for exactly this reason.

Borrowers Who Can Absorb Some Risk

Borrowers with more headroom in their budget, or who expect rates to fall over their mortgage term, might find a tracker more appealing — accepting some short-term uncertainty in exchange for the possibility of lower payments if the base rate drops.

It’s a genuine trade-off rather than a free lunch, and it suits confidence in your own finances more than confidence in predicting the Bank of England.

Home Movers and Re-mortgagers

If you’re likely to move home or re-mortgage again within a couple of years, a shorter fix or a tracker with a low or no early repayment charge can offer more room to manoeuvre than locking into a longer deal.

Many lenders allow you to ‘port’ your existing mortgage rate to a new property when you move, but it’s worth confirming this is possible with your specific lender and product before assuming it will carry over automatically.

Buy-to-Let and Self-Employed Borrowers

Buy-to-let borrowers often lean toward fixed rates too, simply because predictable mortgage costs make it easier to manage rental yields and cash flow across a portfolio.

Self-employed borrowers, whose income can already fluctuate month to month, frequently prefer the same certainty for the same reason — removing one variable from an already variable financial picture tends to make budgeting considerably easier, even if it means paying slightly more for the privilege.

Split and Part-and-Part Mortgages

Combining Fixed and Tracker Elements

Not every mortgage has to be entirely one type or another. Some lenders allow you to split your borrowing between a fixed portion and a tracker or variable portion, giving you a blend of certainty and flexibility within a single mortgage.

This can suit borrowers who want to hedge their bets — protecting part of their monthly payment from rate rises while leaving another part free to benefit if rates fall.

Worked Example: A 50/50 Split

Picture a £200,000 mortgage split evenly: £100,000 on a five-year fix at 5.7%, and £100,000 on a tracker at base rate plus 0.75%, currently 4.5%. The fixed portion would cost around £623 a month, and the tracker portion around £556 a month, for a combined payment of roughly £1,179 — sitting neatly between a fully fixed and fully tracker deal on the same amount. If the base rate later fell, only the tracker half of the payment would move, giving a partial benefit without exposing the whole mortgage to rate risk.

How These Rates Get Set

Base Rate vs Swap Rate Pricing

It helps to understand that trackers and swap-rate-based fixes aren’t reacting to the same signal. Trackers move directly and immediately with the Bank of England’s base rate, which is set at scheduled Monetary Policy Committee meetings roughly every six weeks.

Fixed rates, by contrast, are priced using swap rates — a reflection of what financial markets expect interest rates to average over the next two, five, or ten years.

This is why fixed rates can move up or down in the weeks before a base rate decision, as markets price in what they expect the Bank to do next, rather than waiting for the announcement itself.

Why This Affects Your Timing

Because of this difference, waiting for a base rate cut in the hope that fixed rates will automatically follow doesn’t always work as expected — much of that expectation may already be baked into fixed pricing months in advance.

Trackers, meanwhile, guarantee you’ll feel every base rate change directly and promptly, for better or worse. Neither approach is inherently smarter; they simply respond to different things, which is worth bearing in mind if you’re trying to time your mortgage decision around interest rate forecasts.

A mortgage broker who watches swap rates and base rate expectations daily can often add real value here, spotting when fixed pricing has already moved ahead of an expected Bank of England decision.

What to Do Before Your Deal Ends

Whichever type of mortgage you choose, the same rule applies at the end of the term: doing nothing means rolling onto the lender’s SVR, almost always the most expensive outcome available. Most lenders let you lock in a new rate up to six months before your current deal ends, so it’s worth diarising the date and starting to compare options early.