Fixed vs Tracker: Which Is Better?

How a Tracker Mortgage Works

A tracker mortgage follows the Bank of England base rate automatically. Your rate is defined as the base rate plus a lender margin - for example, base rate plus 0.75%. If the base rate is 3.75%, you pay 4.50%; if the Bank cuts to 3.25%, your rate drops to 4.00% the following month, with no action needed from you.

This is different from a lender's standard variable rate (SVR), which the lender can change at its own discretion. A tracker is contractual: when the base rate moves, your rate moves by exactly the same amount. Some trackers have a "collar" - a floor below which your rate cannot fall - so check the small print, but the basic mechanism is transparent.

How a Fixed-Rate Mortgage Works

A fixed-rate deal locks your interest rate for a set period - most commonly two or five years. Your monthly payment is identical every month for the full fixed period, whatever the Bank of England does. At the end of the deal you remortgage onto a new product, or drift onto the lender's SVR if you do nothing.

The price of that certainty is inflexibility. Fixed deals come with early repayment charges (ERCs) if you leave during the fixed period, and overpayments are usually capped - typically at 10% of the outstanding balance per year. You are trading freedom for predictability.

Worked Scenarios: £250,000 Over 25 Years

Take a £250,000 mortgage over 25 years. At an illustrative fixed rate of 4.75%, the monthly payment is roughly £1,426 - locked in, whatever happens to base rate. Now consider a tracker at base rate plus 0.70%: with base rate at 3.75%, you pay 4.45%, or roughly £1,383 a month - about £43 less than the fix.

But watch what happens when rates move. If the Bank of England cuts base rate to 2.75%, the tracker falls to 3.45% and the payment drops to roughly £1,245 - now nearly £180 cheaper than the fix, with no remortgaging needed. If base rate rises to 4.75% instead, the tracker climbs to 5.45% and the payment rises to roughly £1,528 - just over £100 more than the fix. These are illustrative figures; the point is the shape of the risk, not the exact pounds.

Notice the asymmetry the fixed-rate borrower accepts: they overpay when rates fall and underpay when rates rise. The tracker borrower gets the market rate at all times - for better and for worse.

ERCs: The Hidden Cost of Fixed Deals

Early repayment charges are the fixed market's sting in the tail. Most fixed deals charge 1-5% of the outstanding balance if you repay or remortgage during the fixed period, usually tapering - say 5% in year one, 4% in year two, and so on. On a £250,000 mortgage, a 3% ERC is £7,500, payable on top of everything else.

Trackers, by contrast, usually have no ERCs at all, or only a short one. That makes them the natural choice if you might sell, move, or remortgage within the next couple of years: you can exit a tracker essentially for free, while exiting a fix can cost thousands. Life is unpredictable - job moves, growing families, relationship changes - and the ERC schedule rarely cares about your reasons.

Overpayment Flexibility: Trackers Usually Win

Fixed deals typically let you overpay up to 10% of the outstanding balance per year without charge - generous for most borrowers, but a real constraint if you receive a bonus, an inheritance, or a lump sum you want to put against the mortgage. Exceed the allowance and ERCs apply to the excess.

Trackers are usually far more permissive, with many allowing unlimited overpayments with no penalty. If your strategy involves hammering the mortgage with lump sums - a pay rise, a maturing savings pot, freelance income - a tracker (or an offset deal) gives you freedom a fix simply does not.

Two-Year vs Five-Year Fix: A Quick Note

If you lean toward fixed, the next choice is term length. Two-year fixes are usually cheaper in the near term and let you reassess sooner - attractive if you expect rates to fall. But you will pay remortgaging costs (or at least the hassle) again in 24 months, and you are betting twice on the direction of rates.

Five-year fixes cost a little more upfront but buy half a decade of certainty and a single remortgaging event. For buyers who value stability - or who bought at the top of their affordability - the five-year fix remains the UK market's default for a reason.

Who Suits Whom

Trackers suit borrowers who can absorb a payment rise without stress, who expect base rate to fall, or who value flexibility above all - likely movers, the self-employed with lumpy income, and anyone planning large overpayments. You need the temperament to watch your payment move and not panic.

Fixed deals suit borrowers who need to know their payment to the pound - tight budgets, first-time buyers stretching affordability, and anyone who would lose sleep over a rate rise. They also suit anyone confident they will stay put for the full fixed period, since the ERC problem disappears if you never trigger it.

This is general information, not personal financial advice. The right choice depends on your budget's sensitivity to payment changes, your plans for the next few years, and the current gap between fixed and tracker pricing - which a qualified mortgage adviser can walk through with your real numbers.

Run Your Own Numbers

The fixed-vs-tracker question is really a payment question: what does each option cost today, and what happens to the tracker if base rate moves one point either way? Running those scenarios takes minutes.

Use our free UK mortgage calculator to compare monthly payments at different rates and see how a base-rate rise or cut would change a tracker's cost against a fixed deal.

• Compare UK mortgage payments

Sources

The figures and policy details in this article come from the following primary sources, checked at the time of writing.

• Bank of England official Bank Rate
• Rightmove weekly UK mortgage rate tracker