Fixed, Tracker and Variable Rate Mortgages, Which is Right for You?

The Three Main Mortgage Rate Types

When you take out a mortgage in the UK, the interest rate structure you choose determines how your monthly payments are calculated and how exposed you are to interest rate movements. There are three principal types: fixed rate, tracker rate, and variable rate (which itself encompasses standard variable rates and discounted rates).

Fixed Rate Mortgages

With a fixed rate mortgage, your interest rate is locked at an agreed level for a set period, typically two, three, or five years, though ten-year fixes exist. During that period, your monthly payment will not change regardless of what happens to Bank of England base rate or wider market rates.

• Payment certainty, ideal for budgeting
• Protection if rates rise during the fixed term
• Generally the most popular choice for first-time buyers
• Early repayment charges (ERCs) apply if you exit the deal early
• At the end of the fixed term, the mortgage reverts to the lender's standard variable rate (SVR)

Tracker Mortgages

A tracker mortgage follows an external benchmark, usually the Bank of England base rate, at a set margin above it. For example, a tracker might be priced at "base rate plus 1%". If base rate is 4.5%, you pay 5.5%. If base rate rises to 5%, you pay 6%.

• Payments fall automatically if base rate drops
• Often no early repayment charges (though check the terms)
• Typically lower initial rate than fixed equivalents
• Payments rise when base rate rises, budgeting uncertainty
• Some trackers have a "collar", a floor below which the rate cannot fall even if base rate does

Standard Variable Rate (SVR)

Every mortgage lender sets their own SVR, which is not directly tied to the Bank of England base rate. Lenders can change it at will, though in practice it tends to move broadly in line with base rate changes. SVR mortgages offer maximum flexibility, typically no ERCs, but they are usually the most expensive rate.

Rate Type Comparison

How to Choose

There is no universally correct answer. The right choice depends on your personal circumstances, the current interest rate environment, and your attitude to financial risk. If you are buying your first home with a tight budget and need payment certainty, a fixed rate is typically the safer option. If rates are widely expected to fall, and you could absorb higher payments if they rise instead, a tracker may offer better value.

The Money and Pensions Service provides free, impartial guidance via MoneyHelper. An independent mortgage broker regulated by the Financial Conduct Authority can compare deals across the whole market and model different scenarios for your specific situation.