Fixed vs variable rates
What you'll learn
Understand the difference between a fixed and a variable mortgage rate.
A mortgage rate is either fixed or variable, and the difference is simply who carries the risk that rates change.
A fixed rate locks your payment for a set period, usually two or five years. Whatever happens to interest rates, your payment cannot move. You are buying certainty, and you pay a small premium for it. A fix is best understood as insurance against your payment rising, not a bet on where rates go.
A variable rate can change.
| Rate type | How it moves | Certainty |
|---|---|---|
| Fixed | Locked for the deal period | High |
| Tracker | Bank of England base rate plus a fixed margin | Low |
| Standard variable (SVR) | Set by the lender, at any time | Lowest |
A tracker follows the base rate plus a fixed margin, so it moves the moment the base rate does. The standard variable rate (SVR) is set by the lender at its own discretion, is usually the most expensive, and is the rate you fall onto automatically when a deal ends.
The right choice is not about predicting rates. The market that prices mortgages has already baked in its best guess. It is about whether a sharp rise would break your budget. If it would, fix. If you could absorb it, a variable rate can work out cheaper.
Key takeaways
- A fixed rate locks your payment; it is insurance, not a bet on rates.
- A tracker follows the base rate plus a margin; the SVR is set by the lender.
- The SVR is usually the most expensive rate and the one you revert to by default.
- Choose by whether a payment rise would hurt you, not by forecasting rates.
Illustrative only. A fixed payment stays put for the deal period; a variable one moves with rates.
Frequently asked questions
What is better, a fixed or variable mortgage?
It depends on whether a sudden payment rise would hurt you. Fix for certainty if a rise would strain your budget. A variable rate can be cheaper if you could absorb the swing. It is not about predicting rates.
What is a standard variable rate (SVR)?
The lender's default rate, set at its own discretion. It is usually the most expensive rate, and it is the one you revert to automatically when a fixed or tracker deal ends if you do nothing.
Should I fix for 2 or 5 years?
Five years buys longer certainty and avoids fees sooner; two years is cheaper to exit if your plans change. Match the term to how settled your life and income are.
General information, not financial advice. The value of investments can fall as well as rise, and figures and rules can change; check the current position before acting.