1. The Main Mortgage Types
Every mortgage has an interest rate. The key question is whether that rate is fixed for a set period, or whether it floats with market conditions. Here are the four main types:
| Type | Rate Changes? | Typical Term | ERC on early exit? |
|---|---|---|---|
| Fixed rate | No — locked for deal period | 2, 3, 5, or 10 years | Yes (1–5%) |
| Tracker | Yes — follows BoE base rate | 2 years or lifetime | Often none |
| Discount | Yes — lender's SVR minus discount | 2–3 years | Yes |
| SVR (Standard Variable Rate) | Yes — lender sets it | None (ongoing default) | None |
Fixed Rate Mortgage
- Monthly payment never changes
- Budget certainty for the full term
- Protected if rates rise
- Miss out if rates fall
- ERC if leaving early
- May be slightly higher than tracker at start
Tracker / Variable Rate
- Benefit immediately when rates fall
- Often no ERC — full flexibility
- Currently competitive vs fixed
- Payment can rise unexpectedly
- Budget uncertainty
- Must stress-test affordability
2. Fixed Rate Mortgages Explained
A fixed rate mortgage locks in an interest rate for a set period — typically 2, 5, or 10 years. Whatever happens to the Bank of England base rate, your monthly payment stays the same.
2-Year Fixed
The most popular choice in the UK. At the end of 2 years, you remortgage to a new deal. Good when:
- You expect rates to fall — you'll lock in something lower in 2 years
- You're planning to move within 2–4 years
- You want to reassess your equity position more frequently
The downside: you face remortgaging costs (arrangement fee, legal work) every 2 years, and if rates have risen by then, your new rate will be higher.
5-Year Fixed
Provides more certainty and reduces the remortgaging overhead. A longer fix does not always cost more: in August 2026 the Bank of England's average quoted five-year fix at 75% LTV (4.78%) was slightly below the two-year (4.92%). Good when:
- You want certainty for 5 years — no remortgage stress
- You think rates will be higher in 2 years
- You're staying in the property for 5+ years
10-Year Fixed
A niche product. The ERC period is very long, limiting flexibility. Most borrowers find 5 years a better trade-off unless they have very specific reasons for locking in long-term.
Early Repayment Charges (ERCs)
Fixed rate mortgages almost always carry ERCs — penalties for leaving before the deal ends. Typical ERCs:
| Year of deal | Typical ERC | On £200,000 balance |
|---|---|---|
| Year 1 | 5% | £10,000 |
| Year 2 | 4% | £8,000 |
| Year 3 | 3% | £6,000 |
| Year 4 | 2% | £4,000 |
| Year 5 | 1% | £2,000 |
Overpayments and ERCsMost fixed mortgages allow overpayments of up to 10% of the outstanding balance per year without an ERC. Exceeding 10% may trigger a charge. Always check your product terms before overpaying.
3. Tracker Mortgages Explained
A tracker mortgage charges an interest rate set at a fixed margin above the Bank of England base rate. If the base rate is 3.75% and your tracker is base rate + 0.9%, your rate is 4.65%. When the base rate changes, your rate changes automatically — usually within one month.
Lifetime tracker vs short-term tracker
- Short-term tracker (2 years): Reverts to SVR after 2 years; often has a small ERC
- Lifetime tracker: Tracks for the full mortgage term; usually no ERC — maximum flexibility
Floor clauses
Some tracker mortgages have a floor — a minimum rate even if the base rate falls below it. Before the financial crisis, rates hit 0.1% and some trackers didn't follow down. Check for a floor clause in the product terms.
Bank of England Bank Rate (September 2026): 3.75%The base rate has fallen from 5.25% (peak in 2023) and is expected to continue falling gradually. Tracker mortgages have benefited from these cuts automatically, while fixed-rate holders had to wait for their deal to end before accessing lower rates.
SVR — the default you want to avoid
When any fixed or tracker deal ends, borrowers automatically move to the lender's SVR. An SVR is set at each lender’s discretion and sits well above the best available fixed rates — commonly by a few percentage points, though UKCalc has no authoritative source for a current market-wide range. Moving to SVR can add hundreds of pounds per month to your payment. Always remortgage before your deal ends.
4. Which Should You Choose?
There's no universally correct answer. The best choice depends on your personal circumstances, risk tolerance, and what you believe will happen to interest rates — which nobody can predict reliably.
Choose a fixed rate if:
- You need budget certainty — fixed income, tight monthly margin
- You're staying in the property for the full fixed term
- You believe rates may rise from current levels
- The mental load of tracking rates and market moves isn't worth it
- You have dependants and can't absorb payment increases
Consider a tracker if:
- You believe the base rate will fall significantly over the next 2 years
- You may need to exit the mortgage early (job move, sale) — trackers often have no ERC
- You're comfortable with payment variability and have income flexibility
- You want maximum overpayment flexibility without ERC risk
2026 context: what do the rates actually look like?
| Product | Average quoted rate, 75% LTV | Average quoted rate, 90% LTV |
|---|---|---|
| 2-year fixed | 4.92% | 5.16% |
| 5-year fixed | 4.78% | not published |
| 2-year variable | 4.23% | not published |
| Lender SVR* | set by lender | set by lender |
Bank of England quoted household interest rates, August 2026: monthly averages of the rates lenders advertise, not the rate any one borrower is offered. The Bank publishes no comparable series for the cells marked "not published". *An SVR is set at each lender's discretion and UKCalc has no authoritative source for a current market-wide range. As an illustration only: an SVR priced 2.5–4.0 percentage points above a 3.75% Bank Rate would be 6.25–7.75%. Use the Mortgage Calculator to model exact payments.
The 2-year vs 5-year fixed questionIn August 2026 the Bank of England's average quoted 2yr and 5yr fixed rates at 75% LTV were close — 4.92% and 4.78%, with the five-year slightly lower. If you believe rates will fall significantly over the next 2 years, a 2yr fix might cost less overall. If you value certainty and don't want to remortgage in 2028, the 5yr fix is a sound choice and currently carries no rate premium on that average.