How a fixed rate works
You agree a rate with the lender for an initial period — typically 2, 3, 5 or 10 years. During that period your monthly payment doesn't change, regardless of what the Bank of England does with base rate. At the end of the fix, the loan reverts to the lender's standard variable rate (SVR), at which point most borrowers remortgage or take a product transfer to a new fix or tracker.
Fixed rates are priced against swap rates, not directly against base rate. Swap rates are what banks pay to lock in funding for matching periods, and they reflect markets' best collective forecast of where base rate is going. That's why a 5-year fix can be cheaper than base rate when markets expect cuts, and more expensive when markets expect rises.
How a tracker works
A tracker is priced as base rate plus a margin — for example, "base + 0.79%". When base rate moves, your pay rate moves by the same amount, usually within 30 days. Trackers come in two flavours:
- Term trackers follow base rate for the entire life of the mortgage. These usually carry no early repayment charge.
- Initial-period trackers track base for 2, 3 or 5 years before reverting to SVR, similar to a fix.
Some trackers include a "collar" or "floor" — a minimum rate the product won't drop below — and a few include a "cap" or "ceiling". Read the product terms; the headline rate isn't always the whole picture.
Indicative 2026 pricing
At the time of writing, with base rate at 4.00%, typical pricing on a 75% LTV residential mortgage looks like this:
- 2-year fix: 4.39%
- 5-year fix: 4.22%
- 2-year tracker (base + 0.79%): 4.79%, falling to 4.54% on the first cut
- Lifetime tracker (base + 0.94%): 4.94%, no ERC
Swap markets are pricing 2–3 base-rate cuts over the next 18 months. A tracker that starts at 4.79% would be at roughly 4.04% after two 0.25% cuts, undercutting today's 2-year fix. That's the bet borrowers take when they pick a tracker. If cuts don't materialise — or if the next move is a rise — the fix wins.
Decision framework: which to pick
Choose a fix if any of these apply
- Your monthly payment would be uncomfortable if rates rose by 1–2%.
- You're a first time buyer who values predictability above optimisation.
- Your household budget runs on a tight monthly margin.
- You won't need to repay the mortgage early or move within the fixed term.
- The fix is materially cheaper than the equivalent-term tracker on day one.
Choose a tracker if any of these apply
- You expect to overpay heavily, sell, or repay a lump sum within 2–3 years.
- You have at least £200–300 a month of payment headroom in case rates rise.
- You believe markets are over-pricing future rate stability and cuts are likely.
- You want the optionality to fix later if conditions change.
Worked example
James borrows £240,000 over 30 years. The choice is a 5-year fix at 4.22% (£1,176/month) or a 2-year tracker at base + 0.79% (currently 4.79%, £1,260/month). The tracker starts £84/month more expensive. If base rate falls 0.50% in year one, the tracker drops to 4.29% (£1,186/month) — saving £74/month versus its starting point. James needs payment headroom of around £100/month to take that bet comfortably. With three children under 10 and limited slack in the budget, he picks the fix.
Product transfer vs remortgage when your deal ends
When your initial fix or tracker term ends, you have two routes: a product transfer with your existing lender (no affordability re-check, faster, often slightly worse rates) or a remortgage to a new lender (full reassessment, usually better pricing). The right choice depends on whether your circumstances now would clear the new lender's affordability — if income has fallen or expenditure risen, a product transfer is often the safer route.
Pros
- Fixed rates give complete payment certainty.
- Trackers fall automatically when base rate falls — no remortgage needed.
- Most trackers have no early repayment charge, giving real flexibility.
- The UK 5-year fix is one of the most lender-competed products on the market — sharp pricing.
- Both products allow overpayments up to 10% of the balance per year on most lenders.
Cons
- Fixed rates lock you in — early repayment charges can be 1–5% of the balance.
- Trackers expose you to monthly payment swings.
- Tracker collars can trap you above market when base rate falls.
- 5-year fixes can leave you stuck on an above-market rate if pricing improves.
- The 'best' product is only known with hindsight.
How brokers help you decide
A good broker won't try to forecast base rate for you. They'll stress-test your monthly budget against a range of scenarios, model the total interest cost of fix vs tracker over your likely time in the property, and price in the cost of switching products mid-term if circumstances change. The right product is the one your household can live with regardless of how rates move.