Last reviewed: June 2026
TL;DR- Fixed rate mortgages provide payment certainty for the deal period but carry ERCs and do not benefit from rate falls.
- Variable rate mortgages (trackers, discount, SVR) move with the base rate or lender SVR, offering flexibility but payment uncertainty.
- The 2022-2023 rapid base rate rises illustrated the risk of variable rate exposure - payments increased significantly for tracker and SVR borrowers.
- The right choice depends on the rate environment, the borrower's financial resilience and their flexibility needs (ability to overpay or move without penalty).
The Core Trade-off
Fixed rate mortgages offer certainty: the payment is the same every month for the deal period, regardless of what happens to the Bank of England base rate or the lender's SVR. Variable rate mortgages (tracker, discount or SVR) offer flexibility: typically no early repayment charge, the ability to switch products or redeem without penalty, and the potential benefit of lower payments if rates fall. The cost of certainty is the ERC that locks the borrower in; the cost of flexibility is payment uncertainty.
When Fixed Rates Are More Appropriate
Fixed rates typically suit borrowers who: need payment certainty for budgeting (particularly first time buyers or those with tight affordability margins); are stretching to the maximum affordable payment and cannot absorb rate increases; are purchasing a property they plan to stay in for the full fixed period; or are concerned about the prospect of rate rises during the deal period. Fixed rates also protect against the specific scenario that occurred in 2022-2023, when rapid base rate increases pushed tracker and SVR payments up sharply in a short period.
When Variable Rates Are More Appropriate
Variable rates (particularly tracker mortgages with no ERC) suit borrowers who: have income headroom to absorb payment increases; plan to sell or significantly overpay within the next few years and do not want to be locked in by an ERC; are in a rate environment where fixed rates are priced at a significant premium to trackers; or want the flexibility to remortgage quickly if rates change. The absence of an ERC is the key operational advantage of most tracker products.
The 2022-2023 Rate Cycle as Context
The Bank of England base rate rose from 0.1% in December 2021 to 5.25% by August 2023. Borrowers on tracker mortgages saw monthly payments increase by hundreds of pounds on standard loan sizes. This episode illustrated the material risk of variable rate exposure in an inflationary environment with rising rates. The subsequent cycle of gradual rate reductions demonstrated that tracker holders do benefit when rates fall. The lesson is that variable rate suitability depends heavily on the borrower's financial resilience and their ability to absorb the worst-case scenario.
Choosing the Fixed Period
For borrowers who prefer a fixed rate, the choice between 2-year and 5-year (or longer) deals involves additional trade-offs. A 2-year fix requires remortgaging more frequently (higher transaction costs over time) but offers more flexibility to adapt to changing circumstances. A 5-year fix provides more certainty, fewer remortgage events and lower cumulative transaction costs, but commits the borrower to the same lender and product for longer.
Frequently Asked Questions
Is a fixed or variable rate cheaper overall?
Neither is always cheaper - it depends on how interest rates move during the deal period, which cannot be predicted with certainty. If rates rise during the deal period, the fixed rate borrower benefits (their rate does not increase). If rates fall, the variable rate borrower benefits (their payments decrease). Historically, periods of rate stability or decline have favoured variable rates; periods of rising rates have favoured fixed. The right choice depends on rate expectations, risk tolerance and individual circumstances.
Can I switch from variable to fixed during a deal period?
If the current variable rate product has no ERC (which most tracker mortgages do not), the borrower can switch to a fixed rate at any time by remortgaging to a new product. If an ERC applies (some discount deals carry them), switching during the deal period triggers the charge. The cost of switching must be weighed against the benefit of the new fixed rate.
What is the swap rate and why does it affect fixed mortgage rates?
The swap rate is the rate at which banks can fix their own borrowing costs in the wholesale money market for a given period. Fixed mortgage rates are priced primarily by reference to the relevant swap rate plus a margin. When swap rates rise (reflecting market expectations of higher future interest rates), fixed mortgage rates typically follow, even if the current Bank of England base rate has not moved. This is why fixed rates can increase before a base rate rise.
Should I fix for two or five years in 2026?
The appropriate term depends on the rate differential between 2-year and 5-year products at the time of application, the borrower's plans (potential sale, significant overpayment or major life change within 5 years), and their preference for certainty versus flexibility. A regulated mortgage adviser can model the cost of each option under different rate scenarios for the borrower's specific loan and circumstances.
