Whether you opt for a fixed or variable (tracker) mortgage rate depends largely on your financial situation, your tolerance for risk, and your long-term goals. But market movements and forecasts may also have a bearing. Both types of mortgages have their advantages and disadvantages, so the best choice will reflect your personal circumstances. This article weighs up the key factors to consider when deciding which option is right for you.
When to consider a fixed-rate mortgage
A fixed-rate mortgage provides stability and security, and may suit more risk-averse individuals. You’ll have the peace of mind that comes with knowing exactly how much your monthly payments will be for the duration of the fixed rate period. This makes budgeting easier and avoids any unexpected financial strain due to rising interest rates.
The drawback of a fixed rate is that you can’t benefit if interest rates fall. This is where a variable rate mortgage can come into play.
When to consider a variable-rate mortgage
If you’re comfortable with some level of risk and believe that interest rates will decrease over time, a variable-rate mortgage (also known as a tracker mortgage) could be a good option. If rates do fall, you could benefit from lower payments, as your interest rate will adjust accordingly.
A variable rate also offers flexibility. If you plan to sell your home, or refinance in a few years, a variable-rate mortgage might work in your favour. Variable rates are often (but not always) free of early repayment charges, allowing you to switch lenders, borrow more, or move home without being penalised.
What’s happening with interest rates?
Fixed rates are currently cheaper than variable rates. However, as the chart shows, the price gap between the two has narrowed in early 2025. The Bank of England (BoE) base rate is expected to fall further in the second half of 2025, and these forecasts are reflected in swap rate markets, where lenders generally purchase fixed rate funds from. If these predictions are correct and the BoE base rate does fall, tracker rates will fall too. The gamble is, will fixed or variable win the (hopefully downwards) race?
Changing market expectations around base rate movements in recent months has led to volatility, which in turn affects fixed rates. As market views change, lenders’ costs change, and ultimately the fixed rates we get as consumers change.
When choosing between a fixed or variable rate, close attention should be paid to the gap between the two, along with market expectations regarding the base rate. Variable rates can of course differ from expectations, while a fixed rate will not.
The bottom line: Which option is right for you?
A fixed-rate mortgage may be the right option if you prioritise stability and want to lock in your interest rate for the medium to long term, especially if you are concerned about the possibility of future interest rate rises, or if you feel rates will not fall as quickly as some expect.
Consider a variable-rate mortgage if you’re comfortable with some uncertainty, believe interest rates will decrease, or if you plan on selling or refinancing in a few years.
Each type of mortgage has pros and cons, so taking the time to carefully assess your circumstances and consult with a mortgage adviser can help ensure you make the best choice for your situation. Call 03300 564 446 to learn more, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Your home or property may be repossessed if you do not keep up repayments on your mortgage. Mortgage availability and terms depend on your individual circumstances and are subject to lender criteria.
