Fixed vs Variable Mortgages UK: Which is Cheaper in 2026?

Fixed or variable mortgage? December 2025's mortgage price war has created exceptional opportunities with 2-year fixed rates from 3.55% and 5-year fixed from 3.76% - the lowest rates since September 2022. Meanwhile, tracker mortgages start at 4.50% (base rate + 0.5%), with 90% market probability of a base rate cut from 4.00% to 3.75% on December 18, 2025.

Market trends show 53% of borrowers now choose 2-year fixed deals (up from previous 5-year preference), reflecting confidence in continued rate falls. The Standard Variable Rate (SVR) averages 7.27%, making it crucial to avoid rolling onto SVR when your fixed term ends. This comprehensive guide compares all mortgage types using December 2025 rates to help you choose the cheapest option.

Understanding Fixed vs Variable Mortgages

Fixed Rate Mortgages

How they work:

• Interest rate locked in for 2, 3, 5, or 10 years
• Monthly payments stay the same throughout fixed period
• Protection from rate rises
• Peace of mind with predictable budgeting

December 2025 best rates:

• 2-year fixed (60% LTV): 3.55% (Santander, £749 fee)
• 5-year fixed (60% LTV): 3.76% (Santander, £749 fee)
• 10-year fixed: 4.35% (Nationwide, £499 fee purchase)

Typical features:

• Overpayment limit: 10-20% annually
• Early Repayment Charges (ERC): 1-5% if you exit early
• After fixed term: Automatically move to SVR (7.27% average)
• Must remortgage to avoid expensive SVR

Variable Rate Mortgages

Three main types:

1. Standard Variable Rate (SVR):

• Lender's default rate after fixed deals end
• Current average: 7.27% (range 6.50-8.58%)
• Can change any time (not always following base rate)
• No Early Repayment Charges
• Unlimited overpayments allowed
• Avoid staying on SVR - always remortgage when fixed term ends

2. Tracker Mortgages:

• Follow Bank of England base rate + fixed margin
• Current base rate: 4.00% (expected 3.75% from December 18)
• Typical trackers: base rate + 0.5% to +2.5% = 4.50-6.50%
• Rate changes automatically when base rate moves
• Usually no ERCs, unlimited overpayments
• Transparent pricing

3. Discount Mortgages:

• Lender's SVR minus fixed discount
• Example: SVR 7.27% - 2% discount = 5.27%
• Discount period typically 2-5 years
• Less common than fixed or tracker

Calculate Your Mortgage Payments with Different Rates →

December 2025 Rate Comparison: Real Cost Differences

Example: £200,000 mortgage, 25-year term, 60% LTV

Mortgage Type	Rate	Monthly Payment	Total Paid (2 years)	Total Interest (25 years)*
2-year fixed	3.55%	£1,008	£24,192	£102,400
5-year fixed	3.76%	£1,027	£24,648	£108,100
10-year fixed	4.35%	£1,098	£26,352	£129,400
Tracker (base+0.5%)	4.50%**	£1,115	£26,760	£134,500
Tracker (base+1.5%)	5.50%**	£1,225	£29,400	£167,500
SVR	7.27%	£1,454	£34,896	£236,200

*Assumes fixed rate for term shown, then SVR for remainder. Actual costs depend on remortgaging strategy. **Based on current 4.00% base rate, expected to fall to 3.75% on December 18, 2025.

Key insights:

• 2-year fixed (3.55%) saves £107/month vs SVR (7.27%) = £1,284/year
• 5-year fixed (3.76%) costs only £19/month more than 2-year
• Best tracker (4.50%) costs £107/month more than 2-year fixed currently
• SVR is £446/month more expensive than 2-year fixed - never stay on SVR!

2-Year vs 5-Year Fixed: The 2025 Trend Shift

Historically, UK borrowers favoured 5-year fixed rates for long-term security. December 2025 shows a dramatic shift:

Current market:

• 53% choosing 2-year fixed (up from ~30% in 2024)
• 70% of first-time buyers choosing 2-year fixed
• Reason: Expectation of continued rate falls into 2026-2027

Cost comparison:

• 2-year fixed: 3.55% = £1,008/month
• 5-year fixed: 3.76% = £1,027/month
• Difference: £19/month (£456 over 2 years)

Why choose 2-year fixed:

• Base rate expected to fall to 3.00-3.25% by end of 2026
• Allows remortgage to even lower rates in 2027
• Minimal cost premium vs 5-year (only £19/month)
• Greater flexibility

Why choose 5-year fixed:

• Longer rate security (no remortgage needed until 2030)
• Protection if rate cuts slower than expected
• Avoids remortgage fees/hassle in 2 years
• Only slightly more expensive than 2-year

Calculate 2-Year vs 5-Year Costs →

Fixed vs Tracker: Should You Bet on Rate Cuts?

With 90% market probability of a base rate cut from 4.00% to 3.75% on December 18, 2025, trackers become more attractive.

Current Tracker Rates

Best trackers (December 2025):

• Base rate + 0.5% = 4.50% (assuming 4.00% base)
• Base rate + 1.0% = 5.00%
• Base rate + 1.5% = 5.50%
• Base rate + 2.0% = 6.00%

After expected December 18 cut to 3.75%:

• Base + 0.5% = 4.25%
• Base + 1.0% = 4.75%
• Base + 1.5% = 5.25%

Fixed vs Tracker Cost Analysis

Scenario 1: Base rate falls to 3.00% by December 2026

2-year fixed at 3.55%:

• Monthly payment: £1,008 (unchanged for 2 years)
• Total paid over 2 years: £24,192

Tracker at base + 0.5%:

• Dec 2025: 4.50% = £1,115/month (1 month)
• Jan-Dec 2026: 4.25% = £1,088/month (12 months)
• Jan-Dec 2027: 3.50% = £1,015/month (12 months)
• Total paid over 2 years: £25,272
• Fixed wins by £1,080 in this scenario

Scenario 2: Base rate falls rapidly to 2.75% by mid-2026

Tracker at base + 0.5%:

• Average rate over 2 years: ~3.50%
• Average monthly: ~£1,015
• Total paid over 2 years: £24,360
• Tracker wins by £168 in this aggressive cut scenario

Scenario 3: Base rate stays at 4.00% (no cuts)

2-year fixed at 3.55%:

• Total paid: £24,192

Tracker at 4.50%:

• Total paid: £26,760
• Fixed wins by £2,568 if no rate cuts occur

Verdict: Fixed rates currently offer better value unless base rate falls aggressively (which is possible but not guaranteed).

Overpayment Flexibility: A Critical Difference

Fixed Rate Mortgages

Overpayment limits:

• Standard: 10% of outstanding balance annually
• Growing number of lenders: 20% annual allowance
• Example on £200,000: £20,000/year overpayment allowed

Early Repayment Charges (ERC):

• Exceed limit during fixed term: 1-5% penalty
• Typical structure:
  • Year 1: 5% of excess
  • Year 2: 4% of excess
  • Year 3: 3% of excess
  • Year 4: 2% of excess
  • Year 5: 1% of excess

Strategy: Most fixed mortgages waive ERC in final month, allowing large overpayment penalty-free before remortgaging.

Variable Rate Mortgages (Tracker/SVR)

Overpayment limits:

• Unlimited overpayments
• No Early Repayment Charges
• Complete flexibility
• Can pay off entire mortgage any time

Advantage: If you receive large windfall (inheritance, bonus, house sale proceeds), variable mortgages allow immediate full payoff without penalty.

Example:

• Inherit £50,000 with £150,000 mortgage remaining
• Fixed mortgage: Limited to 10-20% (£15k-£30k) overpayment, rest waits until next year or incurs penalty
• Variable mortgage: Pay all £50,000 immediately, no penalty

Calculate Overpayment Savings →

Rate Rise Protection: The Fixed Rate Insurance

Fixed rates provide "insurance" against rate rises. But how likely are significant rises?

Base Rate Projections (December 2025)

Market consensus:

• December 18, 2025: Cut to 3.75% (90% probability)
• Mid-2026: 3.50%
• End 2026: 3.00-3.25%
• Long-term neutral rate: 2.50-3.00%

Risk factors for rate rises:

• Inflation rebounds (currently 3.6% CPI, October 2025)
• Wage growth accelerates
• Global economic shocks
• Government fiscal policy changes

Cost of Rate Rise Protection

Think of fixed rates as insurance premiums:

2-year fixed at 3.55% vs tracker at 4.25% (after expected cut):

• Premium: 3.55% vs 4.25% = -0.70% (fixed is cheaper!)
• You're getting rate protection AND lower cost currently

5-year fixed at 3.76% vs tracker at 4.25%:

• Premium: 3.76% vs 4.25% = -0.49% (fixed still cheaper!)
• Exceptional value for 5 years of certainty

Verdict: December 2025's mortgage price war has made fixed rates both cheaper AND safer than trackers for most borrowers.

First-Time Buyers: Which Mortgage Type?

70% of first-time buyers choose 2-year fixed rates in December 2025. Here's why:

First-Time Buyer Priorities

1. Budgeting certainty (critical early on):

• First year homeownership brings unexpected costs
• Fixed payments allow accurate budgeting
• No shock rate rises during settlement period

2. Overpayment potential:

• Early career = rising income
• 10-20% annual overpayment allowance sufficient
• Aggressive overpaying reduces mortgage faster

3. Remortgage flexibility:

• After 2 years: Often increased equity via house price growth
• After 2 years: Potentially higher income = better affordability
• Can access better rates with improved LTV in 2027

4. Rate expectations:

• Continued falls expected into 2026-2027
• 2-year allows refinance to lower rates sooner
• 5-year locks in current rate for longer (less attractive if rates falling)

Recommended for first-time buyers:

• 2-year fixed at 60-85% LTV if you have larger deposit
• 2-year fixed at 90-95% LTV if smaller deposit
• Avoid tracker unless very confident in budgeting and rate fall expectations
• Never stay on SVR - always remortgage

Calculate First-Time Buyer Affordability →

Remortgaging: Fixed or Variable?

When your fixed term ends, you face a choice:

Option 1: Remortgage to New Fixed Deal (Recommended)

Advantages:

• Avoid expensive SVR (7.27% average)
• Lock in current low rates (3.55-3.76%)
• Predictable payments

Process:

• Start remortgage process 3-6 months before fixed term ends
• Shop around for best rates
• Consider switching lenders for better deals
• Expect £999-£1,500 in fees (but offset by savings)

December 2025 remortgage rates:

• 2-year fixed: 3.55-4.04% depending on LTV
• 5-year fixed: 3.76-4.29% depending on LTV
• Usually 0.1-0.3% higher than purchase rates

Option 2: Move to SVR (Not Recommended)

When it might make sense:

• Planning to move house within 6 months
• Planning to pay off mortgage very soon
• Waiting for anticipated rate cuts before fixing again

Disadvantages:

• Expensive (7.27% average)
• Costs £446/month more than 2-year fixed on £200k mortgage
• Uncertainty (lenders can change SVR any time)

Option 3: Switch to Tracker

When it makes sense:

• You believe aggressive base rate cuts coming
• You want overpayment flexibility
• You can handle payment fluctuations

Current tracker rates for remortgage:

• Base rate + 0.5-2.5% = 4.50-6.50%
• More expensive than fixed currently
• Only choose if expecting base rate to fall below 3.00% within 2 years

The Mortgage Price War: December 2025 Context

22 lenders repriced in early December 2025, creating unprecedented competition:

What's driving it:

• Year-end lending targets
• Competition for market share
• Base rate cut expectations
• Improved economic outlook

Best deals:

• Some 2-year fixes below 3.80% (3-year lows)
• 5-year fixes below 4.00%
• Purchase and remortgage rates nearly equal
• High LTV rates (85-90%) surprisingly competitive

How long will it last?

• Typically intensifies in December (year-end targets)
• May ease in January 2026
• But continued rate falls likely to sustain competition into 2026
• Lock in rates now if you're buying/remortgaging in Q1 2026

See Current Best Rates in Mortgage Calculator →

Which Mortgage Type Should You Choose?

Choose 2-Year Fixed If:

• ✅ You expect interest rates to fall further by 2027
• ✅ You're a first-time buyer wanting short-term certainty
• ✅ You prioritise flexibility to remortgage to better deals soon
• ✅ Current best rate: 3.55% (60% LTV)

Choose 5-Year Fixed If:

• ✅ You want long-term payment certainty (5 years)
• ✅ You don't want remortgage hassle in 2 years
• ✅ You believe rate falls will be modest (under 1% total)
• ✅ Current best rate: 3.76% (60% LTV)
• ✅ Only £19/month more than 2-year fixed

Choose 10-Year Fixed If:

• ✅ You want maximum long-term security
• ✅ You plan to stay in property 10+ years
• ✅ You're willing to pay premium for certainty
• ✅ Current best rate: 4.35% (purchase)
• ✅ Premium: £90/month vs 2-year fixed

Choose Tracker If:

• ✅ You believe base rate will fall below 3.00% within 2 years
• ✅ You want unlimited overpayment flexibility
• ✅ You can handle monthly payment fluctuations
• ✅ Current rate: 4.50-6.50% (base + margin)
• ✅ Currently more expensive than fixed

Never Choose SVR

• ❌ Always avoid SVR (7.27% average)
• ❌ Costs £446/month more than 2-year fixed
• ❌ Remortgage 3-6 months before fixed term ends
• ❌ Even if briefly on SVR, remortgage immediately

Frequently Asked Questions

What is the difference between fixed and variable mortgages?

Fixed mortgages lock your interest rate for 2, 5, or 10 years, giving predictable monthly payments. Variable mortgages (tracker, SVR, discount) change when the Bank of England base rate or lender's SVR changes. December 2025 rates: best 2-year fixed 3.55%, best 5-year 3.76%, tracker from 4.50%, SVR 7.27% average.

Should I fix for 2 or 5 years in 2026?

53% of borrowers now choose 2-year fixed rates, expecting continued rate falls into 2026-2027. 2-year fixed (3.55%) costs only £19/month less than 5-year (3.76%), so choose 2-year if you want to remortgage to even lower rates in 2027, or 5-year for longer certainty with minimal cost difference.

Is a tracker mortgage cheaper than fixed in December 2025?

No. Best 2-year fixed is 3.55%, whilst tracker mortgages start at 4.50% (base rate 4.00% + 0.5%). Even after the expected base rate cut to 3.75% on December 18, trackers will be 4.25%+, still more expensive than fixed. Trackers only become cheaper if base rate falls below 3.00% (possible by late 2026).

What happens when my fixed rate ends?

You automatically move to your lender's Standard Variable Rate (SVR), averaging 7.27% - significantly higher than fixed rates. Always remortgage 3-6 months before your fixed term ends to avoid SVR. You can remortgage to a new fixed deal, tracker, or switch lenders for better rates.

Can I overpay on a fixed rate mortgage?

Yes, but typically limited to 10-20% of outstanding balance annually. Exceed this during the fixed term and you'll face Early Repayment Charges (1-5% of excess). Variable/tracker mortgages allow unlimited overpayments with no penalties. Most fixed mortgages waive ERCs in the final month before the term ends.

Which mortgage is best for first-time buyers?

70% of first-time buyers choose 2-year fixed rates in December 2025. Best 2-year rate is 3.55% (60% LTV), offering payment certainty whilst allowing remortgage to potentially lower rates in 2027. This balances budgeting security (critical for first-time buyers) with flexibility as your circumstances improve.

What if interest rates rise instead of fall?

Fixed rates provide protection against rate rises. However, market consensus expects base rate to fall from 4.00% to 3.00-3.25% by end of 2026. Risk of significant rises is low unless inflation rebounds above 4% or major economic shocks occur. Even if you choose fixed and rates fall, you can remortgage to lower rates when your fixed term ends.

How much does the mortgage type really matter?

Significantly. On a £200,000 mortgage, SVR (7.27%) costs £446/month more than 2-year fixed (3.55%) - that's £5,352/year or £133,800 over 25 years. Even tracker vs fixed (4.50% vs 3.55%) costs £107/month more - £1,284/year. Choosing the right mortgage type can save tens of thousands over the mortgage term.

Should I wait for rates to fall further?

December 2025 rates are at 3-year lows (2-year fixed from 3.55%). While further cuts are expected, mortgage rates may not fall proportionally. The current mortgage price war has created exceptional value. If you're buying/remortgaging now, lock in current rates. You can always remortgage to lower rates in 2-5 years.

What's the best mortgage for 2026?

For most borrowers: 2-year fixed at 3.55% (60% LTV) offers the best balance of low cost, payment certainty, and flexibility to remortgage when rates fall further. 5-year fixed at 3.76% (only £19/month more) suits those wanting longer security. Avoid trackers (currently 4.50%+) unless you're confident base rate will fall below 3.00% soon.

Related Resources

• UK Mortgage Calculator - Compare fixed vs variable costs instantly
• Mortgage Overpayment Guide 2026 - Save thousands with overpayments
• Income Tax Calculator 2026 - Calculate mortgage affordability after tax
• Compound Interest Calculator - Compare mortgage vs savings returns

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Official Sources:

• Bank of England: Base Rate (4.00%, held November 6, 2025)
• Moneyfacts: December 2025 Mortgage Best Buy Tables (8 December 2025)
• HomeOwners Alliance: Q3 2025 Market Statistics
• Which?: Mortgage Comparison Guide

Last updated: 10 December 2025 Disclaimer: Mortgage rates change daily. December 2025 rates shown: best 2-year fixed 3.55% (Santander, 60% LTV, £749 fee), best 5-year fixed 3.76% (Santander, 60% LTV, £749 fee), SVR average 7.27%, tracker from base rate + 0.5% (currently 4.50%). Base rate currently 4.00% with 90% market probability of cut to 3.75% on December 18, 2025. Product availability varies by LTV, credit score, and lender criteria. Always get personalised quotes from multiple lenders and consider working with a mortgage broker. UK Calculator is not a mortgage adviser.