Fixed vs Variable Mortgages — Which One Wins?

The single most important mortgage decision most UK borrowers make is whether to fix and for how long, or to track. There is no universally correct answer — the right choice depends on the swap curve, your risk tolerance, your time horizon, and the size of the loan. This guide shows how to think through the decision.

What you get with a fix

A fixed-rate mortgage gives you a contractual rate for a defined period — typically two, three, five, or ten years. During the fix, your monthly payment is unchanged regardless of what happens to the base rate, the swap curve, or the lender’s appetite. At the end of the fix you can remortgage onto a new deal or fall onto the lender’s standard variable rate.

The trade-off is twofold. First, you pay a small fix premium — the difference between today’s tracker rate and the equivalent fix. In a normal upward-sloping curve, the five-year fix prices roughly 20 to 50 basis points above an equivalent two-year fix, which itself prices roughly 30 to 60 basis points above a tracker. Second, you face early-repayment charges if you exit the fix before its end date — typically 3% to 5% of the outstanding balance, tapering through the term.

For most borrowers buying a forever home with a stable income, a five-year fix is the workhorse product. It is long enough to ride through a typical monetary cycle, short enough to avoid the longest fix premium, and gives the household genuine planning certainty.

What you get with a tracker

A tracker mortgage is priced at the Bank of England base rate plus a contracted margin. When the base rate moves, your rate moves within one billing cycle. There is no fix premium baked into the headline rate, so trackers typically start cheaper than equivalent fixed deals.

You bear the rate risk. If the base rate rises by one percentage point over two years, your monthly payment rises with it; if it falls, you save. There is typically no early-repayment charge on trackers, or a much shorter ERC window than on a fix — making the tracker attractive for borrowers who expect to move, pay down significantly, or remortgage early.

Trackers come in two flavours: lifetime trackers (held for the life of the mortgage) and term trackers (held for a fixed period, often two or five years, before reverting to the SVR). Lifetime trackers are rare and increasingly expensive; term trackers are the more common product.

How to read the swap curve

The two-year and five-year SONIA swap rates are the canonical view of where the market thinks the base rate is heading. If five-year SONIA prices materially below two-year SONIA, the market expects rate cuts; that environment favours trackers and short fixes. If five-year SONIA prices above two-year SONIA, the market expects rate hikes; that environment favours longer fixes.

In mid-2026 the curve was relatively flat, with the two-year and five-year SONIA points trading within 25 basis points of each other. A flat curve is harder to read — it implies the market is roughly evenly balanced about the direction. In a flat-curve environment, the right product depends more on personal circumstances than market view.

Note that the swap curve is the market’s expectations net of any risk premium for taking the long position — it is not a pure forecast. Markets routinely under- and over-shoot the realised base rate path. Past data suggests the market’s implied path is roughly unbiased over multi-year horizons, but with substantial variance.

Breakeven analysis

The breakeven question for fix-versus-tracker is: how much would the base rate have to rise during the fix period for the tracker to end up costing more than the fix? If the answer is "more than the market is pricing", the fix is the better hedge; if the answer is "less than the market is pricing", the tracker has more value.

A worked example. Suppose a two-year fix at 4.45% is on offer against a tracker at base + 0.65% (currently 5.15%, but moving with the base rate). The tracker starts 70 basis points more expensive. For the tracker to win over two years, the base rate would need to fall by roughly 35 basis points on average across the period — i.e. the average base rate over the 24 months needs to be 35 basis points below today’s rate.

Now check what the market is pricing. If two-year SONIA is 25 basis points below the current base rate, the market expects an average 25-basis-point decline over the period. The tracker would beat the fix only if the market is too cautious — i.e. cuts come in faster than priced. Whether that is the right bet depends on your view, but at least the question is now framed quantitatively.

What people get wrong

The most common mistake is over-weighting recent base-rate movement when choosing the next fix. After a long hiking cycle, borrowers gravitate to long fixes — locking in the post-cycle peak. After a long cutting cycle, borrowers gravitate to trackers — exposing themselves to the next hiking cycle. Both are forms of recency bias and historically have led to worse outcomes than a more contrarian choice.

The second common mistake is choosing a fix length based on the cheapest headline rate without considering the early-repayment charge schedule and the borrower’s realistic plans. Taking a five-year fix when you might move or remortgage in two years sets up an expensive exit penalty that can wipe out years of rate savings.

The third common mistake is ignoring the size of the arrangement fee on the cheapest deals. A 4.25% rate with a £1,499 fee can be more expensive over a two-year fix than a 4.55% rate with no fee on any loan below roughly £100,000.

Frequently asked questions

UK mortgage rate snapshot — selected LTV bands

"The Bank of England Bank Rate sets the floor for UK mortgage pricing — but lender margins, LTV-band step-ups, and Affordability Test arithmetic determine the actual rate you pay."