What's the Difference Between a Fixed-Rate and Variable-Rate Mortgage?

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage means your interest rate - and therefore your monthly repayments - stay the same for a set period. Common terms are 2, 3, 5 or 10 years.

Pros:

• Predictable monthly payments
• Protection from interest rate rises
• Easier budgeting, especially for first-time buyers

Cons:

• Usually higher starting rates than variable deals
• Early repayment charges if you want to exit early
• If interest rates fall, you won't benefit until your term ends

What Is a Variable-Rate Mortgage?

A variable-rate mortgage means your interest rate can change over time, usually based on the lender's standard variable rate (SVR), or a tracker that follows the Bank of England base rate.

Types of Variable Mortgages:

• Tracker: Moves directly with the Bank of England base rate, often at a fixed margin (e.g. base +1%).
• Discounted Variable: A temporary discount off the lender's SVR.
• Standard Variable Rate (SVR): The lender's own rate. These are often the default when a fixed or tracker deal ends, and they tend to be higher and more volatile.

Pros:

• May offer lower initial rates than fixed mortgages
• Can benefit if interest rates fall
• Often fewer or no early repayment charges

Cons:

• Your payments can increase if interest rates rise
• Harder to budget long term
• More financial uncertainty

Which Is Better in August 2025?

After a period of rising interest rates from 2022 to mid-2024, the market in 2025 is more uncertain. Inflation is showing signs of easing, and the Bank of England has hinted at possible rate cuts later this year or early next year.

As of August 2025:

• Fixed-rate deals are still priced higher than pre-2022 norms but are beginning to fall slightly in anticipation of potential base rate reductions.
• Variable-rate deals, especially trackers, may offer lower initial rates but carry the risk of future increases if inflation spikes again or global shocks impact rates.

Many borrowers locking into fixed deals now are choosing shorter terms (2–3 years), expecting better rates to return in the medium term. However, those with a higher risk tolerance or anticipating rate cuts sooner might prefer a tracker or discounted variable product.

What Should You Consider?

• Financial stability: If you need predictable payments, fixed is safer.
• Economic outlook: If rates may fall, variable could save money.
• How long you plan to stay: For short stays, early repayment charges matter more.
• Remortgaging flexibility: Variable deals often have more freedom to switch or repay early.

In today's market, fixed-rate mortgages offer stability and protection from future uncertainty - at a premium. Variable-rate mortgages may provide savings if interest rates fall, but carry the risk of higher costs if rates rise. With the Bank of England expected to hold or slowly cut rates in the next 6–12 months, many borrowers are weighing short-term fixed deals or flexible tracker options.

Ultimately, the right choice depends on your risk appetite, financial goals, and how long you plan to stay in the property. If in doubt, seek advice from Farrell Heyworth to help match your needs to the market conditions.