Fixed Rate Mortgages Explained: Benefits, Risks and How They Work
Published 24th of March 2013·Updated 19 April 2026
Reviewed by: Reviewed for accuracy April 2026
A fixed rate mortgage locks in your interest rate for a set period, typically 2, 3 or 5 years, so your monthly repayment stays exactly the same throughout the deal. After the fixed period ends, your lender automatically moves you onto their Standard Variable Rate (SVR), which is usually higher. Most borrowers remortgage at that point to secure a new deal.
Short Summary
Fixed rate mortgages give you certainty over your monthly outgoings. Whatever happens to Bank of England base rate during your fix, your payment will not change.
The main drawback is inflexibility. Leaving a fixed rate deal early usually triggers an early repayment charge (ERC), which can be several thousand pounds. You also risk missing out if interest rates fall significantly during your fix.
Fixed rate deals typically carry an arrangement fee, ranging from nothing to over £2,000 depending on the lender and deal. This fee must be factored into the total cost when comparing deals.
Most fixed rates allow overpayments of up to 10% of the outstanding balance per year without penalty, which lets you pay down debt faster while still benefiting from the rate lock.
What is a fixed rate mortgage and how does it work?
A fixed rate mortgage is one where you agree an interest rate with your lender at the outset, and that rate does not change for the length of the fixed period. Your monthly payment is therefore predictable from day one.
Fixed periods are usually 2, 3 or 5 years, though some lenders offer 7 or 10-year fixes. The longer the fix, the more certainty you get, but you may pay a slightly higher rate in exchange. At the end of the fixed period, the rate reverts to the lender's SVR unless you remortgage.
The fixed rate itself is set by the lender based on swap rates in the wholesale money markets, not directly by the Bank of England base rate.
What are the benefits of a fixed rate mortgage?
The biggest benefit is payment certainty. You know exactly what you will pay each month for the duration of the deal, which makes budgeting straightforward. This matters especially if your household income is tight or if interest rates are rising.
If base rates increase sharply during your fix (as they did between 2022 and 2023 when the base rate rose from 0.1% to 5.25%), your payment stays the same while variable rate borrowers see their costs climb. That protection has real financial value.
Fixed rates also benefit repayment mortgage holders when rates fall. If you are on a repayment mortgage and the base rate drops, your fixed payment means you are effectively overpaying compared to a variable rate borrower, paying off your capital faster and reducing your total debt more quickly.
What are the drawbacks of a fixed rate mortgage?
The main risk is that interest rates fall below your fixed rate during the deal period and you end up paying more than you need to. On a standard variable or tracker mortgage, your payments would have dropped; on a fixed rate, they will not.
Early repayment charges are the other major drawback. If you need to sell your home or switch to a different mortgage before the fix ends, the ERC can be substantial. Charges are typically expressed as a percentage of the outstanding loan, often 1% to 5%, declining as you get closer to the end of the fixed period.
Arrangement fees are common on competitive fixed rate deals. A low headline rate often comes with a fee of £999 or more. Always calculate the total cost over the deal period, not just the monthly payment, before deciding.
Is a fixed rate mortgage right for me?
A fixed rate mortgage suits borrowers who need payment certainty. If you are on a tight budget, just bought your first home or are nervous about rate rises, fixing your rate removes one major financial uncertainty from your life.
| Borrower profile | Fixed rate suits? |
|---|---|
| Tight monthly budget | Yes - removes risk of payment rises |
| Expect rates to fall significantly | No - better on a tracker |
| Plan to sell in under 2 years | No - ERC could be costly |
| Self-employed with variable income | Yes - predictable payments help planning |
| Comfortable with rate fluctuation | Possibly not - tracker may be cheaper |
If you are financially comfortable and confident rates will stay low or fall, a tracker mortgage may save you money. But for most first-time buyers and those on fixed incomes, a fixed rate deal provides important peace of mind.
What happens when my fixed rate deal ends?
When your fixed period ends, your lender automatically moves you to their SVR. The SVR is typically 2 to 4 percentage points above the Bank of England base rate and significantly higher than most new fixed deals. Staying on the SVR for even a few months can cost hundreds of pounds in unnecessary extra interest.
Start looking for a new deal three to six months before your fix ends. Most lenders let you lock in a new rate up to six months in advance without obligation. You can then switch to the new deal on the day your fix expires, ensuring no gap on the SVR.
You are not obliged to stay with your current lender. Shopping the whole market (or using a whole-of-market mortgage broker) will often find a better deal than your existing lender's retention offer.
Can I overpay a fixed rate mortgage?
Yes, most fixed rate mortgages allow overpayments of up to 10% of the outstanding balance per year without triggering an early repayment charge. Overpaying reduces your balance faster and cuts the total interest you pay. Check your mortgage offer document for the exact terms, as the allowance varies by lender.
What is an early repayment charge?
An early repayment charge (ERC) is a penalty for leaving a fixed rate deal before the end of the agreed term. It is usually calculated as a percentage of the outstanding loan. For example, on a £200,000 mortgage with a 3% ERC, you would pay £6,000 to exit early. ERCs typically reduce year by year, so a 2-year fix may charge 2% in year one and 1% in year two.
What is the difference between a fixed rate and a tracker mortgage?
A fixed rate mortgage charges a set interest rate that does not change during the deal period. A tracker mortgage charges a rate that moves in line with the Bank of England base rate, usually at a set margin above it. Trackers can go up or down; fixed rates cannot.
Should I choose a 2-year or 5-year fix?
A 2-year fix gives you flexibility to remortgage sooner and take advantage of lower rates if they fall. A 5-year fix offers longer certainty but locks you in for longer. If rates are high and expected to fall, a 2-year fix may be better. If rates are low and expected to rise, locking in for 5 years offers more protection. Speak to a whole-of-market mortgage broker for advice tailored to your situation.
What is a Standard Variable Rate?
The Standard Variable Rate (SVR) is the default interest rate your lender applies when your initial deal ends. Each lender sets its own SVR and can change it at any time, not just when the Bank of England moves the base rate. SVRs are almost always higher than new fixed or tracker deals on the market. Staying on the SVR for longer than necessary is one of the most common and costly mortgage mistakes.