When you take out a mortgage, your lender will charge interest on the amount you borrow. The rate type you choose decides how that interest is calculated month to month. The two most common choices in the UK are a fixed-rate mortgage and a tracker mortgage.
This article explains how each one works, how they compare, and what to think about before choosing.
This article is information only. It does not constitute financial advice and does not take your personal circumstances into account. Speaking to a qualified, independent mortgage adviser can help you weigh up the options that apply to your situation.
What is the direct difference between fixed and tracker mortgages?
A fixed-rate mortgage locks your interest rate at a set level for an agreed period, usually two, three, or five years. Your monthly payment stays the same throughout that period, regardless of what happens to interest rates elsewhere.
A tracker mortgage sets your interest rate as a margin above the Bank of England base rate. For example, "base rate plus 1%". When the base rate moves, your mortgage rate moves with it, and so does your monthly payment.
That is the core difference: one is predictable; the other moves.
How does a fixed-rate mortgage work?
When you take out a fixed-rate deal, the lender agrees to charge you a specific rate for the fixed term. If you take a two-year fix at 4.5%, you pay 4.5% for two years.
During that time, base rate changes do not affect your payments. If the base rate rises sharply, you are insulated. If it falls, you do not benefit either.
At the end of the fixed term, the mortgage typically moves onto the lender's standard variable rate (SVR). SVRs are usually higher than deal rates, so most borrowers look to remortgage to a new deal before the term ends.
Fixed-rate mortgages often come with an early repayment charge (ERC) if you want to leave the deal before the fixed period is up. The charge is usually a percentage of the outstanding balance.
How does a tracker mortgage work?
A tracker mortgage has an interest rate that is set at a defined margin above the Bank of England base rate. The margin is agreed at the start and stays constant, but the base rate itself can change.
For example, if your tracker is "base rate plus 0.75%" and the base rate is 4.25%, you pay 5%. If the base rate drops to 3.75%, your rate becomes 4.5%.
The Bank of England's Monetary Policy Committee (MPC) meets approximately every six weeks to decide whether to raise, cut, or hold the base rate. That means your tracker rate can change several times in a year, or stay the same for many months, depending on economic conditions.
Some tracker mortgages have no early repayment charges, which gives you more flexibility to switch or pay off the mortgage early. Always check the specific terms, as products vary.
Side-by-side comparison: fixed vs tracker
| Feature | Fixed-rate mortgage | Tracker mortgage |
|---|---|---|
| How the rate is set | Agreed rate at the start of the deal | Set margin above Bank of England base rate |
| Monthly payment stability | Stays the same throughout the fixed term | Changes whenever the base rate changes |
| Protection from rate rises | Yes | No |
| Benefit if rates fall | No | Yes |
| Early repayment charges | Common during the fixed term | Often lower or absent, but varies |
| Planning your budget | Straightforward | Harder if rates move frequently |
| Typical deal lengths | 2, 3, 5 or 10 years | 2 years, or lifetime trackers with no end date |
Who does each rate type suit?
There is no single correct answer. The right choice depends on your circumstances and your attitude to payment changes.
A fixed-rate mortgage may suit you if:
- You want certainty about your monthly payments
- You are on a tight budget with little room to absorb higher payments
- You expect interest rates to rise over your deal period
- You are a first-time buyer who wants simplicity while settling in
A tracker mortgage may be worth considering if:
- You think interest rates are likely to fall or stay low
- You want the flexibility to overpay or leave the deal without a large penalty
- You can comfortably afford higher payments if the base rate rises
- You are comfortable accepting some uncertainty in exchange for the possibility of lower payments
A simple way to think about it: fixed gives you a ceiling and a floor at the same price. A tracker gives you neither a ceiling nor a floor, but does let you benefit from a falling base rate.
What is the Bank of England base rate, and why does it matter?
The base rate is the interest rate set by the Bank of England. It influences the cost of borrowing across the whole economy, including the rates lenders charge on mortgages.
When the base rate is high, tracker mortgages tend to be more expensive. When it falls, tracker rates fall with it.
The base rate has moved significantly at times in recent history, so it is not safe to assume it stays stable. Looking at publicly available Bank of England records can help you understand how it has moved in the past, though past movements are not a reliable guide to future ones.
Fixed-rate mortgage pricing is also influenced by the base rate, but it is set in advance and priced partly on market expectations of where rates are heading. This means fixed rates sometimes move before the base rate itself does.
What to check before choosing
Whichever rate type you are considering, a few things are worth looking at closely before you commit:
- The total cost over the deal period. Compare the monthly payments and any fees for both a fixed and a tracker deal across the same period.
- Early repayment charges. If there is a chance you might want to move, overpay, or switch deals early, check what the exit penalty would be.
- What happens at the end of the deal. Find out what rate you would move to after the initial period and factor that into your thinking.
- Your budget headroom. With a tracker, ask yourself: if the base rate rose by 1% or 2%, could you still manage the higher payment comfortably?
- Product fees. Some mortgages have arrangement fees that add to the overall cost. A lower headline rate with a high fee may cost more in total than a slightly higher rate with no fee.
Using a mortgage broker can help you compare products across the market. Brokers have access to deals that are not always available directly and can explain the cost differences in plain numbers.
FAQ
What happens when a fixed-rate deal ends?
When your fixed term ends, your lender usually moves you onto its standard variable rate (SVR), which is typically higher. Most borrowers remortgage to a new deal before this happens. It is worth planning ahead, as arranging a new deal can take several weeks.
Can a tracker mortgage rate go below the base rate?
Some tracker mortgages track at a set margin above the base rate, for example base rate plus 1%. A few older products had 'collar' clauses that prevented the rate falling below a floor, but these are less common now. Always check the terms before agreeing.
Is a fixed or tracker mortgage cheaper overall?
Neither is always cheaper. If the base rate falls, a tracker can cost less. If the base rate rises, a fixed rate protects you. The total cost depends on how rates move during your mortgage term, which cannot be predicted with certainty.
Can I switch from a tracker to a fixed mortgage?
Yes, though switching mid-deal may trigger an early repayment charge (ERC). Check whether your tracker has a tie-in period and what any exit fees would be before deciding to switch.
Does the Bank of England base rate change often?
The Bank of England's Monetary Policy Committee meets roughly every six weeks and can change the base rate, hold it, or reduce it. In practice, the rate can stay unchanged for months, or move several times in a year. Past movements are public record on the Bank of England website.
Related reading
For a broader look at how mortgage borrowing works, the Mortgages guide covers the full picture from application to repayment.
You may also find these sources useful:
- MoneyHelper (moneyhelper.org.uk), free, impartial guidance on mortgages and comparing deals
- Bank of England (bankofengland.co.uk), base rate history and current rate decisions
- FCA (fca.org.uk), information on how mortgage lenders are regulated in the UK
- What happens when a fixed-rate deal ends?
When your fixed term ends, your lender usually moves you onto its standard variable rate (SVR), which is typically higher. Most borrowers remortgage to a new deal before this happens. It is worth planning ahead, as arranging a new deal can take several weeks.
- Can a tracker mortgage rate go below the base rate?
Some tracker mortgages track at a set margin above the base rate, for example base rate plus 1%. A few older products had 'collar' clauses that prevented the rate falling below a floor, but these are less common now. Always check the terms before agreeing.
- Is a fixed or tracker mortgage cheaper overall?
Neither is always cheaper. If the base rate falls, a tracker can cost less. If the base rate rises, a fixed rate protects you. The total cost depends on how rates move during your mortgage term, which cannot be predicted with certainty.
- Can I switch from a tracker to a fixed mortgage?
Yes, though switching mid-deal may trigger an early repayment charge (ERC). Check whether your tracker has a tie-in period and what any exit fees would be before deciding to switch.
- Does the Bank of England base rate change often?
The Bank of England's Monetary Policy Committee meets roughly every six weeks and can change the base rate, hold it, or reduce it. In practice, the rate can stay unchanged for months, or move several times in a year. Past movements are public record on the Bank of England website.