A guide to fixed-rate mortgages

When you take out a fixed-rate mortgage, the interest rate is locked in for an agreed period, regardless of changes to the Bank of England base rate or the lender’s standard variable rate (SVR). Your monthly payment stays the same throughout the fix, making it easy to budget.

At the end of the fixed period, you are typically moved onto the lender’s SVR, which is usually significantly higher than your fixed rate. This is why most borrowers remortgage onto a new deal before or shortly after their fix expires.

Fixed-rate mortgages are available on both repayment and interest-only terms, and from virtually every mortgage lender in the UK. They are suitable for first-time buyers, home movers, and those remortgaging from an existing deal.

The main drawback is the early repayment charge (ERC). If you want to repay your mortgage early, overpay beyond the allowed limits, or switch to a new deal before the fix ends, you will typically face a charge of 1–5% of the outstanding balance. This can amount to thousands of pounds and limits your flexibility.

You also miss out if interest rates fall during your fix. While your payments stay the same, borrowers on variable rates or tracker mortgages would see theirs decrease. Over a long fix period, this opportunity cost can be significant if rates move substantially downward.

Longer fixes tend to have higher initial rates than shorter ones, reflecting the lender’s cost of guaranteeing the rate for longer. You pay a premium for the additional certainty, which may or may not prove worthwhile depending on how rates move.