Should you fix your mortgage or opt for a variable rate?

Homeowners looking to remortgage and first-time buyers keen to get on the ladder face a tricky decision between choosing a fixed rate or variable rate deal.

The Bank of England’s (BoE) Monetary Policy Committee (MPC) reduced interest rates from 4% to 3.75% in December – it has now cut rates six times cut since August 2024 –, but there are no certainties over what it will do at its next meeting on 5 February and beyond in 2026.

The MPC took the decision to lower interest rates after inflation slowed to 3.2% in the 12 months to November, but it is still above the central bank’s 2% target, meaning there’s no guarantee of further cuts despite the UK economy stagnating.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

For those looking to get a mortgage or remortgage, the question is – should you opt for a variable rate deal that will fall when the base rate does, or is it wise to lock in a fixed rate deal which offers certainty over what you will pay over the next few years?

Around 1.8 million fixed rate mortgages are set to end this year, according to trade body UK Finance, potentially leaving behind some of the lowest mortgage rates ever offered in the UK.

Those who are locked into a fixed rate in 2021 or before and whose deal is yet to come to an end face paying interest rates vastly higher than what they signed up for five years ago.

The average two-year fixed residential mortgage rate as of 19 January is 4.78%, according to data firm Moneyfacts. This is down from 2.52% in January 2021. Meanwhile, the average five-year fixed residential mortgage rate is 4.88%, down from 2.71% in January 2021.

What is next for mortgage rates though, and what decision could be best for you?

Should I remortgage now?

Around 1.8 million fixed rate mortgages are scheduled to end in 2026, according to UK Finance’s latest mortgage market forecast, compared with 1.6 million in 2025.

The trade body predicts overall gross mortgage lending will rise by 4% this year to £300 billion. It is also forecasting a 10% rise in external remortgaging and 2% rise in product transfers.

An external remortgage is when you take out a new mortgage with a different lender while a product transfer involves selecting a new mortgage product with your existing lender.

This data points to a busier remortgaging market in 2026 compared to 2025.

What is a fixed rate mortgage?

A fixed rate mortgage has an interest rate that is guaranteed to stay the same for the term of your mortgage deal. If you chose a two-year fixed rate at 5% you know with absolute certainty that for the next two years your mortgage rate will be locked in at 5%.

The rate you’re offered depends on several factors such as the amount of equity you have in your home and your credit history.

What is a variable rate mortgage?

If you choose a variable rate mortgage, your rate can vary during the term of your mortgage deal depending on the type of variable mortgage you have picked.

Borrowers opting for a two-year variable rate mortgage, for example, could start off with an interest rate of 5%, see it fall six months later to 4.85% but rise to 5.15% by the end of the two years.

What’s the difference between a tracker, a discount and a Standard Variable Rate mortgage?

There are three types of variable rate mortgage:

• Tracker mortgage

Trackers are directly linked to the Bank of England base rate and track its movements, either up or down.

If your deal tracks the Bank of England Base Rate (BBR) by +0.50%, your rate is 3.75% plus 0.50% giving you a rate of 4.25%.

The average two-year tracker as of 19 January is 4.41%, according to Moneyfacts.

• Discount mortgage

A discount is applied to the mortgage lender’s standard variable rate (SVR), the default rate all borrowers pay when not in a mortgage deal.

You might be offered a 2% discount off the lender’s SVR of 7% giving you a rate of 5%. If the lender changes their SVR, your rate changes too.

• Standard Variable Rate (SVR) mortgage

Borrowers not tied into a mortgage deal will pay their lender’s SVR.

According to Moneyfacts, the average SVR as of 1 January is 7.25%, down from 7.60% in May. This is clearly much higher than other options so hanging around on your lender’s SVR is a costly move.

Fixed vs variable rate mortgage: Pros and cons

Fixed rate mortgages guarantee stability over your monthly mortgage payments making it easier to budget your household finances.

However, if you need to remortgage or repay your loan before the end of your fixed rate you’ll be charged a penalty. You’ll also miss out on any decreases in interest rates.

Borrowers on variable rates will take advantage of cuts to interest rates and are more likely to be able to remortgage away from their deal before the end of its term, penalty-free. But, if rates go up so will your monthly payment which can make budgeting tricky.

Are fixed mortgage rates going up or down?

Mortgage rates generally trended downward in 2025. The Moneyfacts Average Mortgage Rate dropped by 0.53 percentage points between January 2025 and January 2026, from 5.4% to 4.87%.

Mortgage rates could be set to fall further too as markets expect the base rate to fall to between 3.25% and 3.5% in 2026.

Rachel Springall, finance expert at Moneyfacts, said a number of lenders, including Nationwide, cut fixed rate mortgage rates at the start of 2026 following lower swap rates – the rates charged between financial institutions for lending money.

She said: “Fixed rate cuts have been in abundance, fueling healthy drops to the average two-year fixed mortgage rate.”

Should I fix my mortgage?

That depends on your circumstances.

If you want the certainty of knowing what your rate will be over a set period of time to help you budget then a fixed rate may be right for you.

However, if you’re considering moving or paying a lump sum off your mortgage before your fixed rate expires, you’re likely to be clobbered by hefty early repayment charges. In this case a penalty-free variable rate could be a better option.

Springall added that as of 19 January, there is a rate difference of 0.4 percentage points between the average two-year tracker mortgage and the average two-year fixed rate which could justify opting for a variable rate mortgage. That said, which deal is best for you depends on your exact circumstances.

“The most appropriate deal would really come down to the choice of the buyer – do they want peace of mind with a fixed rate deal, or do they feel they are in a good position to go for a tracker mortgage instead,” Springall said.

Karen Noye, mortgage expert at wealth management firm Quilter, said because fixed rate mortgage pricing is mainly driven by swap rates, a lot of potential downward changes to base rate in 2026 had already been priced into lenders’ fixed rate mortgage deals.

“Those on a tracker rate holding out for a significant change in fixed rate deals could be waiting for some time yet,” she explained.

Those looking to remortgage onto a fixed deal usually have between four to six months before their current deal ends to lock in a new rate.

Angela Kerr, director of property advice website HomeOwners Alliance, said: "If your mortgage deal isn't due to end until mid-way through 2026, still get advice early, four to six months out.

"Life is busy, and remortgaging isn't the most fun item on the to-do list. But we hear far too often of people that don't give enough time to the process and end up sliding onto their lender's standard variable rate. These are often ridiculously high rates that can cost you dearly."

How long can you fix a mortgage for?

Two and five-year fixed rates are the most common terms offered by lenders with a more limited selection of three and 10-year fixed deals available.

In recent years, two lenders have entered the mortgage market with longer term offerings.

April Mortgages allows borrowers to fix their mortgage rate for up to 15 years while Perenna offers a fixed rate for the life of a homeowner’s mortgage, up to a maximum of 40 years.

Research by Quilter published in 2025 suggests these longer-term mortgages can be dangerous though, with homeowners facing paying off mortgages into retirement.

Can you remortgage on fixed and variable rates?

Yes, you can remortgage but those on a fixed rate can expect to pay a penalty.

A homeowner fixing their rate for five years, for example, could expect to pay a penalty of 5% of their mortgage balance if they remortgaged in year one of their mortgage deal and 1% in year five.

Daniel Bailey, founder of mortgage advice firm Middleton Finance, said: “If you are currently on a fixed deal and you want to remortgage most lenders will have an early repayment charge but it’s always worth checking the terms of your deal.

“Some variable rate mortgages, such as trackers, are usually penalty-free which means you can remortgage at any time during the term of your tracker deal.”

Is it ever a good idea to remortgage and pay the penalty?

Nick Jones, mortgage sales and marketing director for brokerage Access FS, said: “If the new rate you’re remortgaging on to is significantly lower, savings over time could outweigh the initial penalty.

“But it’s all down to individual circumstances. To understand the potential savings in the longer term, discuss this with a professional before taking action.”

How to compare mortgage deals

The simplest and safest way to compare mortgage deals is to ask a mortgage broker to do it for you.

But if you want to do it yourself here’s three tips for comparing deals:

Tip one

Work out your loan to value ratio (LTV) of your property by dividing your mortgage balance by the value of your home to compare rates from different lenders in the same LTV range.

Tip two

“Don’t be led just by the rate,” says Middleton. “Consider all the costs such as the arrangement fee and any booking fee associated with a deal. The lowest rate may not be the most cost-effective deal.” Arrangement fees can range from £0 to £1,499. Remember to factor in early repayment charges too.

Tip three

Check out what flexible features you might need. “If there’s a chance you’ll move or need to overpay, check for porting options and overpayment allowances,” says Jones. “Some lenders allow penalty-free overpayments of 10% per year.”

Find out more on whether to overpay your mortgage or invest in our detailed guide.