Fixed vs Variable Rate Mortgages UK: Which is Better in 2025?

Fixed vs variable: the biggest mortgage decision you'll make. In December 2024, 2-year fixed rates average 4.89-5.04% whilst 5-year fixes cost less at 4.37-4.86% - an unusual inversion showing markets expect rate cuts. Yet 65% of UK borrowers still chose 2-year fixes, betting on further Bank of England cuts from the current 4.75% base rate.

Choose wrong and you could overpay thousands. Pick a 5-year fix now at 4.37%, and if rates drop to 3% next year, you're locked in paying 1.37pp more for four additional years. Alternatively, choose a tracker at 5.46% today, and if rates rise back to 6%, your monthly payments jump £150+ with no protection.

This guide compares fixed and variable mortgages using December 2024 data, explains when each makes sense, and shows exactly what you'll pay on a £300,000 mortgage under different scenarios.

What Are Fixed Rate Mortgages?

A fixed rate mortgage locks your interest rate for a set period (2, 3, 5, or 10 years). Your monthly payment stays exactly the same regardless of what happens to the Bank of England base rate or wider economy.

Current fixed rates (December 2024):

• 2-year fixed: 4.89% average (best: 4.29% TSB at 60% LTV)
• 5-year fixed: 4.37% average (best: 4.19% TSB at 60% LTV)
• 10-year fixed: Around 4.5-4.8%

After your fixed period ends:

• You automatically move to your lender's Standard Variable Rate (currently 7.85% average)
• SVR is typically 3% higher than base rate
• You should remortgage before this happens

Early Repayment Charges (ERCs):

• Apply for the full fixed period (2-year fix = 2 years of ERCs)
• Typically 1-5% of outstanding balance
• Waived in final month of fixed term
• Prevent you escaping if rates fall

Why choose fixed: Certainty and budgeting. You know exactly what you'll pay every month, protecting against rate rises. Ideal if you need stable payments or expect rates to increase.

Calculate Your Fixed Rate Mortgage Payments →

What Are Variable Rate Mortgages?

Variable rate mortgages track changes in interest rates. Your monthly payment goes up when rates rise and down when rates fall. Three main types exist in the UK market:

1. Standard Variable Rate (SVR)

Your lender's default rate after your fixed deal ends. Currently averaging 7.85% (December 2024) - about 3% above the 4.75% Bank of England base rate.

Characteristics:

• Lender sets the rate (not directly linked to base rate)
• Usually expensive (highest rate you can pay)
• No Early Repayment Charges (can overpay unlimited amounts)
• Never deliberately choose this - it's the fallback option

2. Tracker Mortgages

Directly follows Bank of England base rate plus a fixed margin (e.g., Base Rate + 1%).

Current tracker rates: 5.46% average (Base rate 4.75% + margin 0.5-2%)

Characteristics:

• Moves in lockstep with base rate changes
• Transparent pricing (you know exactly how your rate is calculated)
• Usually no ERCs (full flexibility)
• Can have initial discounted periods or collars/caps

Example: Base rate + 1% tracker

• Today (base 4.75%): You pay 5.75%
• Base drops to 3.5%: You pay 4.5%
• Base rises to 6%: You pay 7%

3. Discount Mortgages

Your lender's SVR minus a discount (e.g., SVR - 1%) for an initial period.

Example: SVR currently 7.85%, discount 2% for 2 years

• You pay: 5.85% for the first 2 years
• After discount ends: Revert to SVR (7.85%) unless you remortgage

Characteristics:

• Less transparent than trackers (lender can change SVR independently)
• Typically short discount periods (2-3 years)
• Usually have ERCs during discount period

Warning: Lenders can raise their SVR without base rate changes, making discount mortgages less predictable than trackers.

Compare Your Options with Our Calculator →

Fixed vs Variable: Direct Comparison

Feature	Fixed Rate	Variable Rate (Tracker)
Rate certainty	✅ Yes - locked for 2-10 years	❌ No - changes monthly
Current rates (Dec 2024)	4.37-5.04%	5.46% average
Early repayment charges	❌ Yes - 1-5% for full fixed term	✅ Usually none
Best for	Budgeting, risk-averse, expect rate rises	Rate cuts expected, need flexibility
Monthly payment stability	✅ Same every month	❌ Varies with base rate
Overpayment flexibility	❌ Limited to 10% per year	✅ Unlimited (usually)
Main risk	Miss out on rate falls	Payments increase if rates rise
Popularity (Q4 2024)	65% chose 2-year, 27% chose 5-year	~8% chose variable

Key Insight: The 2-Year Anomaly

Normally, longer fixed terms cost less (certainty premium). In December 2024, we see an inverted curve:

• 2-year fixed: 4.89-5.04%
• 5-year fixed: 4.37-4.86%
• 5-year is cheaper!

This inversion shows markets expect rate cuts. Yet 65% of borrowers still chose 2-year fixes - they're betting on larger cuts than currently priced in, wanting flexibility to remortgage at even lower rates in 2 years.

Real Payment Examples: £300,000 Mortgage Over 25 Years

Let's compare what you'll actually pay on a £300,000 mortgage under different rate scenarios:

Scenario 1: 2-Year Fixed at 5.0%

Monthly payment: £1,754 Total paid over 2 years: £42,096 After 2 years: Remortgage or move to SVR (7.85% = £2,079/month)

Best if: Rates fall significantly within 2 years and you remortgage to 3.5%, dropping payments to £1,506/month (£248/month saving)

Worst if: Rates rise to 6% and you remortgage to £1,933/month (£179/month increase)

Scenario 2: 5-Year Fixed at 4.7%

Monthly payment: £1,697 Total paid over 5 years: £101,820 After 5 years: Remortgage or move to SVR

Best if: Rates rise over next 5 years - you're protected at 4.7% whilst trackers rise to 6-7%

Worst if: Rates drop to 3% by year 2 - you're stuck paying 4.7% (1.7pp more) for 3 additional years with ERCs preventing escape. On £300k, that's £400/month you're overpaying.

Scenario 3: Tracker at 5.5% (Base 4.75% + 0.75%)

Monthly payment today: £1,797 If base drops to 3.5%: Payment falls to £1,579 (£218/month saving) If base rises to 6%: Payment rises to £2,022 (£225/month increase)

Best if: Base rate cuts happen faster than fixed-rate markets predict

Worst if: Inflation returns, base rate rises to 6%+, and you can't afford increased payments

Side-by-Side Comparison Table

Rate Type	Today	If Rates Fall to 3.5%	If Rates Rise to 6%
2-year fixed (5.0%)	£1,754	£1,754 (locked in)	£1,754 (protected!)
5-year fixed (4.7%)	£1,697	£1,697 (locked in)	£1,697 (protected!)
Tracker (Base+0.75%)	£1,797	£1,579 (-£218)	£2,022 (+£225)
SVR (7.85%)	£2,079	£2,079 (unchanged)	£2,079+ (could rise more)

Assumes £300,000 mortgage over 25 years. All payments shown are monthly amounts.

Calculate Your Exact Payments with Different Rates →

When to Choose a Fixed Rate Mortgage

1. You Need Payment Certainty

If you budget carefully and any payment increase would cause financial strain, fixed rates provide peace of mind.

Ideal for:

• Tight monthly budgets
• Single-income households
• Those approaching retirement
• First-time buyers stretching affordability

Example: You can afford £1,700/month but not £1,850. A 5-year fix at £1,697 guarantees you won't be priced out if rates rise.

2. You Expect Interest Rates to Rise

If you believe the Bank of England will increase base rate from 4.75% back to 5-6%, locking in today's rates makes sense.

Recent history:

• Base rate in 2021: 0.1%
• Peak in 2023: 5.25%
• Current (Dec 2024): 4.75%
• Direction: Uncertain (inflation vs growth tradeoff)

3. You're Risk-Averse

Some people sleep better knowing their exact monthly payment for the next 2-5 years, even if they potentially miss out on savings.

Peace of mind calculation:

• Tracker might save £50/month if rates fall
• But could cost £200/month if rates rise
• Fixed rate: Same payment regardless
• Worth it for those who hate financial uncertainty

4. You're Remortgaging Soon

If you're coming off a fixed deal ending soon, a new 2-5 year fix protects you from moving to the expensive SVR (currently 7.85% average).

Never stay on SVR: It costs 3% more than fixed deals (£300k mortgage = £360/month wasted!)

Find Out Your Current Mortgage Costs →

When to Choose a Variable Rate Mortgage

1. You Expect Rate Cuts

If you believe the Bank of England will cut rates faster and deeper than markets expect, trackers allow you to benefit immediately.

Current market pricing (Dec 2024):

• 5-year fix: 4.37% (market expects base rate to average ~3.8-4% over 5 years)
• If you think base will drop to 3% sooner, tracker saves money

Example:

• Base drops from 4.75% to 3.5% (1.25pp cut)
• Tracker (Base+1%): 5.75% → 4.5%
• Your £300k payment: £1,797 → £1,604 (£193/month saving)
• Fixed at 4.7%: Still paying £1,697 (£93/month more than tracker)

2. You Can Handle Payment Increases

Variable rates require financial resilience. Can you absorb a £200/month payment increase if rates rise?

Stress test yourself:

• Current payment: £1,800
• If base rises 1.5pp: New payment £2,000 (+£200)
• Could you afford this? If yes, variable might work
• If no, fixed rate provides essential protection

3. You Want Maximum Flexibility

Variable mortgages typically have no Early Repayment Charges, allowing unlimited overpayments or full repayment anytime.

Benefits:

• Overpay as much as you want (vs 10% limit on fixed)
• Pay off early if you inherit money or sell property
• Switch to fixed deal anytime (no penalty to leave tracker)

Ideal for:

• Those expecting a windfall (inheritance, bonus, property sale)
• Aggressive overpayers wanting to clear mortgage quickly
• People who might move house soon

4. Short-Term Ownership

If you're planning to sell within 1-2 years, paying ERCs to exit a fixed deal early is wasteful.

Example:

• Take 2-year fix, sell house after 1 year
• ERC: 3% of £300,000 = £9,000 penalty
• Tracker: No ERC, no penalty, free to sell anytime

Compare Fixed and Variable Options →

What Will Rates Do in 2025? Market Outlook

Bank of England base rate forecast 2025:

• Currently: 4.75% (held December 2024)
• Expected 2025: Gradual cuts to 3.5-4% by end of year
• 2026 forecast: Further cuts to 3-3.5%

Why are markets pricing in cuts?

• Inflation falling (currently 2.5%, close to 2% target)
• Economic growth slowing
• Global rate-cutting cycle (US Fed, ECB already cutting)

What could prevent cuts:

• Inflation rebounds (energy prices, wage growth)
• UK government borrowing increases
• Global economic shock

The 2-Year Fixed Strategy:

65% of borrowers chose 2-year fixes in Q4 2024 despite them being more expensive than 5-year deals. Why?

Their bet:

• Lock in for 2 years at ~5%
• By 2027, base rate drops to 3-3.5%
• Remortgage to 3.5-4% fixed rate
• If correct: Save £200-300/month vs staying in 5-year fix at 4.7%

Risk: Rates don't fall as expected, and they remortgage in 2027 at same or higher rates

Frequently Asked Questions

Is a fixed or variable rate mortgage better?

Fixed rates are better if you need payment certainty, can't afford payment increases, or expect rates to rise. Variable rates (trackers) are better if you expect rate cuts, need overpayment flexibility, or can handle payment fluctuations. In December 2024, with base rate at 4.75% and cuts expected, both strategies have merit.

Can you switch from fixed to variable?

Yes, but you'll pay Early Repayment Charges (1-5% of outstanding balance) if you're still within your fixed term. ERCs are waived in the final month of your fixed deal. It's usually better to wait until your fixed term ends, then switch to variable or a new fixed deal without penalty.

What happens when my fixed rate ends?

You automatically move to your lender's Standard Variable Rate (SVR), currently averaging 7.85% - about 3% higher than competitive fixed rates. Always remortgage before your fixed term ends to avoid overpaying £300-400/month on a typical mortgage.

Are 2-year or 5-year fixed rates better?

In December 2024, 5-year fixes are cheaper (4.37% vs 4.89% for 2-year), which is unusual. However, 65% still chose 2-year fixes because they expect significant rate cuts within 2 years, allowing them to remortgage to even lower rates. 5-year fixes offer longer protection if rates rise but lock you in if rates fall.

What is a tracker mortgage?

A tracker mortgage directly follows the Bank of England base rate plus a fixed margin (e.g., Base Rate + 1%). If base rate is 4.75% and your margin is 1%, you pay 5.75%. When base rate changes, your rate changes by the exact same amount. Currently averaging 5.46% with typical margins of 0.5-2%.

Can you overpay on variable mortgages?

Yes, most tracker and SVR mortgages allow unlimited overpayments with no Early Repayment Charges. This gives significantly more flexibility than fixed-rate mortgages, which typically limit overpayments to 10% of the outstanding balance per year. Ideal if you want to clear your mortgage aggressively.

Should I fix now or wait?

If you're currently on SVR (7.85% average), fix immediately - you're overpaying £300-400/month. If you're on a competitive tracker or discount deal, waiting might let you fix at lower rates in 6-12 months if base rate falls as expected. However, fixed rates may not fall in proportion to base rate cuts.

What if I choose wrong?

If you fix and rates fall, you're locked in paying more (but protected if wrong and rates rise). If you choose variable and rates rise, your payments increase (but you benefit if correct and rates fall). The cost of choosing wrong is typically £100-200/month on a £300k mortgage - significant but not catastrophic for most borrowers.

Related Resources

• UK Mortgage Calculator - Compare fixed vs variable payments
• How to Calculate Mortgage Payments - Understand the maths behind your payments
• Mortgage Overpayment Guide - Save thousands by overpaying strategically
• Mortgage Affordability Guide - Work out how much you can borrow

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Official Sources:

• Bank of England: Monetary Policy Decisions
• Moneyfacts: Best Buy Mortgage Tables
• Santander: UK Mortgage Trends Report 2024

Last updated: 9 January 2025 Disclaimer: Mortgage rates change daily. Current averages: 2-year fixed 4.89-5.04%, 5-year fixed 4.37-4.86%, tracker 5.46%, SVR 7.85% (December 2024 data). Always compare current rates from multiple lenders. Bank of England base rate forecasts are market expectations, not guarantees. Consider your personal circumstances and risk tolerance. UK Calculator is not a mortgage adviser or broker.