A fixed rate mortgage is a home loan whose interest rate stays the same for a set initial period, commonly two or five years. Monthly payments are unchanged for that term regardless of movements in the Bank of England base rate.
In one line: A fixed rate mortgage locks the interest rate for a set term so monthly payments stay predictable.
How a fixed rate mortgage works
The rate is fixed only for the introductory period. When it ends, the balance moves to the lender's standard variable rate unless a new deal is arranged. Fixed deals usually carry an early repayment charge during the fixed term.
On a 200,000 GBP repayment mortgage fixed at 4.5% over 25 years, the monthly payment is about 1,112 GBP and holds steady for the fixed period even if base rate rises.
Certainty of payment is the main feature. The trade-off is that if rates fall, the borrower stays locked to the higher fixed rate until the term ends.
A fixed rate mortgage vs a tracker mortgage
A fixed rate shields against rate rises but cannot benefit if rates drop. A tracker moves with the base rate, so payments fall when rates fall and rise when they climb.
Leaving a fixed deal early usually triggers an early repayment charge calculated as a percentage of the balance.
Primary source: FCA: Mortgages and home finance