Fixed, tracker, or variable: which mortgage type should you choose?
There are three main types of mortgage interest rate available in the UK. Each behaves differently when Bank Rate moves, and each comes with a different trade-off between certainty and flexibility.
Fixed-rate mortgages
Your interest rate is fixed for a set period — typically 2, 3, or 5 years — regardless of what happens to the Bank of England base rate. After the fixed period, the mortgage automatically reverts to the lender's Standard Variable Rate (SVR) unless you remortgage.
Key features:
- Monthly payments are predictable throughout the fixed period
- Early Repayment Charges (ERCs) typically apply if you overpay beyond the permitted annual limit (usually 10% of the outstanding balance per year) or if you leave the deal early
- ERCs are commonly 1–5% of the outstanding balance, reducing as the fixed period progresses
- 5-year fixes generally carry slightly higher rates than 2-year fixes, reflecting the longer certainty period
Tracker mortgages
The rate is set at a fixed margin above (or occasionally below) the Bank of England base rate. If base rate is 4.5% and you have a tracker at base rate + 1.5%, your mortgage rate is 6%. If base rate falls to 4%, your rate falls to 5.5%.
- Payments move up and down with base rate decisions
- Some trackers have a floor (a minimum rate below which they cannot fall) — check the small print
- Trackers often have lower or no ERCs, particularly lifetime trackers, giving more flexibility
- Introductory trackers typically last 2 years; lifetime trackers run for the mortgage term
You can check the current Bank of England base rate at bankofengland.co.uk.
Standard Variable Rate (SVR)
The SVR is each lender's default rate — the rate you automatically pay once a fixed or tracker deal ends. It is set entirely at the lender's discretion and is typically 2–4 percentage points above the Bank of England base rate. In practice, SVRs have often been in the 7–8% range when base rate was around 4–5%.
SVRs are almost always more expensive than available remortgage products. The period spent on an SVR waiting to remortgage is referred to as the "SVR trap" — every month you delay costs you the difference between the SVR and the best available rate.
There are no ERCs on the SVR — you can switch or overpay freely — but the high rate typically outweighs this flexibility.
Variable rate (discounted)
A discounted variable rate is a set discount off the lender's SVR for a fixed period. Unlike a tracker, it does not follow base rate directly — it follows the SVR. If the lender changes their SVR independently of base rate, your rate changes too.
How to think about the choice
The choice between fixed and tracker is essentially a question about certainty vs flexibility, not about predicting rate movements:
- Fixed suits those who value payment certainty, are budgeting tightly, or would struggle if rates rose
- Tracker suits those who believe rates will fall during the deal period and want to benefit from that, or who value flexibility (e.g. may want to overpay significantly or move soon)
- Longer fix (5-year) provides certainty over a longer period but typically costs more upfront in rate terms; well-suited to those who want to "set and forget" for a longer period
Fixed-rate mortgages — the certainty option
Your interest rate is locked for a set period — typically 2, 3, or 5 years — regardless of what happens to the Bank of England base rate. After the fixed period ends, the mortgage reverts to the lender's Standard Variable Rate (SVR) unless you remortgage.
Key features: monthly payments are completely predictable; Early Repayment Charges (ERCs) of 1–5% apply if you leave during the fixed period; 5-year fixes typically carry a slightly higher rate than 2-year fixes in exchange for longer certainty; best-buy rates at 60% LTV (40% deposit) are significantly lower than at 90% LTV.
Tracker mortgages — the flexibility option
The rate is set at a fixed margin above (or occasionally below) the Bank of England base rate, and moves automatically when base rate changes. If base rate is 3.75% and your tracker is base rate + 1.5%, your rate is 5.25%. If base rate falls to 3.25%, your rate drops to 4.75% automatically — with no action needed.
Key features: payments rise and fall with base rate decisions (MPC meetings are held eight times per year); some trackers have a collar (floor rate) below which they cannot fall; introductory trackers typically run for 2 years before reverting to SVR; lifetime trackers run for the full mortgage term and often carry lower or no ERCs — giving full flexibility to overpay or exit.
Standard Variable Rate (SVR) — what to avoid
The SVR is each lender's default rate — what you automatically pay once a fixed or tracker deal ends without remortgaging. SVRs are set at the lender's discretion and have historically sat 2–4 percentage points above base rate. With base rate at 3.75%, most lenders' SVRs are in the 7–8% range — far above any competitive deal.
There are no ERCs on the SVR, meaning you can switch or overpay freely — but the high rate makes every month of delay expensive. On a £200,000 mortgage, the difference between a 5% fixed deal and a 7.5% SVR is roughly £275/month. Every month on the SVR while waiting to remortgage costs real money.
Discounted variable rate
A set discount off the lender's SVR for a fixed introductory period — for example, "SVR minus 2%" for 2 years. Unlike a tracker, it does not follow base rate directly; it follows the SVR. If the lender changes their SVR independently of the base rate, your rate changes too. This introduces uncertainty that trackers (which are pegged to base rate) don't carry. Less common than fixed or tracker deals, and generally less predictable.
Offset mortgages
An offset mortgage links your savings account to your mortgage. Interest is only charged on the mortgage balance minus your savings — so £200,000 mortgage with £30,000 in savings means you pay interest on £170,000. You don't earn interest on the savings; instead the saving is in reduced mortgage interest. Offset mortgages typically carry a slightly higher rate than equivalent standard deals, but can be powerful for higher-rate taxpayers who would otherwise pay tax on savings interest. Useful for the self-employed or those with variable cash balances.
How to choose: a decision framework
ERC: the hidden cost of switching early
Early Repayment Charges are one of the most misunderstood mortgage costs. They apply during the fixed or introductory period if you pay off the mortgage, remortgage to another lender, or (on some products) overpay beyond the annual free overpayment limit. ERCs are typically expressed as a percentage of the outstanding balance: 5% in year 1, 4% in year 2, and so on, reducing to 0% when the deal period ends. On a £250,000 mortgage, a 3% ERC is £7,500. Always check your ERC before making any change to your mortgage arrangements.