Millions of homeowners will come to the end of their fixed rate mortgages this year leaving behind some of the lowest mortgage rates ever offered in the UK.
Those who locked into a fixed rate in 2020 or before, with equity of at least 40%, are likely to be rolling off an interest rate of around 2% and facing much higher borrowing costs.
Average two-year fixed rates are currently 5.20% according to financial data firm Moneyfacts, while average five-year fixed rates are 5.11%.
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But there is some good news. In February, the Bank of England’s committee of rate setters made the first of what is expected to be several interest rate cuts in 2025, lowering the base rate from 4.75% to 4.5%.
The Bank of England's next base rate decision will be announced on Thursday 8 May 2025. Financial markets are virtually certain the Bank will cut interest rates by another 0.25 percentage points.
This gives the 1.8 million homeowners due to remortgage this year, according to UK Finance, food for thought.
Many are confused. In a survey of 2,000 UK adults by the property advice website Homeowners’ Alliance in April 2025, 37% said they expect mortgage rates to go up over the next 12 months.
This expectation outpaces those who believe rates will hold steady (25%) or fall (16%). Meanwhile, 22% say they simply don’t know, reflecting broader economic anxiety and confusion.
Paula Higgins, HomeOwners Alliance CEO, says: "Uncertainty over the economic climate and what's coming next does nothing for consumer confidence.
“While the Bank of England weighs up its next move, millions are stuck in limbo, unsure whether to fix their mortgage now or hold out for a potential drop in rates.”
In this guide, we look at the things to consider when wondering if you should fix your next mortgage rate or opt for a variable deal.
What is a fixed rate mortgage?
A fixed rate mortgage has an interest rate that is guaranteed to stay the same for the term of your mortgage deal. If you chose a two-year fixed rate at 5% you know with absolute certainty that for the next two years your mortgage rate will be locked in at 5%.
The rate you’re offered depends on several factors such as the amount of equity you have in your home and your credit history.
What is a variable rate mortgage?
If you choose a variable rate mortgage, your rate can vary during the term of your mortgage deal depending on the type of variable mortgage you have picked.
Borrowers opting for a two-year variable rate mortgage, for example, could start off with an interest rate of 5%, see it fall six months later to 4.85% but rise to 5.15% by the end of the two years.
What’s the difference between a tracker, a discount and a Standard Variable Rate mortgage?
There are three types of variable rate mortgage:
Trackers are directly linked to the Bank of England base rate and track its movements, either up or down.
If your deal tracks the Bank of England Base Rate (BBR) by +0.50%, your rate is 4.5% plus 0.50% giving you a rate of 5%.
A discount is applied to the mortgage lender’s standard variable rate (SVR), the default rate all borrowers pay when not in a mortgage deal.
You might be offered a 2% discount off the lender’s SVR of 7% giving you a rate of 5%. If the lender changes their SVR, your rate changes too.
- Standard Variable Rate (SVR) mortgage
Borrowers not tied into a mortgage deal will pay their lender’s SVR.
According to Moneyfacts, the average SVR is currently 7.60% so hanging around on your lender’s SVR is a costly move.
Fixed vs variable rate mortgage: Pros and cons
Fixed rate mortgages guarantee stability over your monthly mortgage payments making it easier to budget your household finances.
However, if you need to remortgage or repay your loan before the end of your fixed rate you’ll be charged a penalty. You’ll also miss out on any decreases in interest rates.
Borrowers on variable rates will take advantage of cuts to interest rates and are more likely to be able to remortgage away from their deal before the end of its term, penalty-free. But, if rates go up so will your monthly payment which can make budgeting tricky.
Are fixed mortgage rates going up or down?
Fixed rates have fallen in early 2025 and more gradual decreases in the cost of borrowing are expected this year if, as anticipated by economists, the Bank of England makes further reductions to the base rate this year.
Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, says: “The recent drops in fixed rate mortgages will come as promising news for prospective buyers and remortgage customers, especially as a handful of lenders are now offering rates below 4%.
“The average two-year fixed mortgage is slowly catching up to its five-year counterpart with a gap of just 0.09%, and whilst longer-term deals have been cheaper since October 2022 the recent reductions may see this inversion come to an end.
“To add to mortgage borrowers’ favour, the Bank of England base rate is expected to see a cut on 8 May which could cause rates to fall further.”
Adrian Anderson, managing director and mortgage adviser at brokerage Anderson Harris, explains fixed-rate mortgages are primarily influenced by swap rates – the rates at which financial institutions lend to each other.
“They increase and decrease depending on various factors including statements from the Bank of England, market anticipations around government policies, and international market tensions,” he says.
“In January economic concerns such as an increase in government borrowing and global economic tensions pushed up swap rates which meant mortgage fixed rates went up. The markets have since calmed which meant swap rates and mortgage fixed rates fell in early February.”
Furthermore, the Bank of England’s decision to cut the base rate from 4.75% to 4.5% has encouraged some lenders to pass on further cuts.
“The recent decision to cut the base rate is good news because it should provide lenders with confidence to reduce fixed rates,” adds Anderson.
“However, significant decreases are unlikely as the base rate cut was already priced into many lenders’ current fixed rate offerings.”
Should I fix my mortgage?
That depends on your circumstances.
If you want the certainty of knowing what your rate will be over a set period of time to help you budget then a fixed rate may be right for you.
However, if you’re considering moving or paying a lump sum off your mortgage before your fixed rate expires, you’re likely to be clobbered by hefty early repayment charges. In this case a penalty-free variable rate could be a better option.
How long can you fix a mortgage for?
Two and five-year fixed rates are the most common terms offered by lenders with a more limited selection of three and 10-year fixed deals available.
Two lenders recently entered the mortgage market with longer term offerings. April Mortgages allows borrowers to fix their mortgage rate for up to 15 years while Perenna offers a fixed rate for the life of a homeowner’s mortgage, up to a maximum of 40 years.
Despite more choice in longer-term fixed rates, five-year fixes remain the most popular term and accounted for 49% of all mortgages taken out in November 2024, according to UK Finance.
Can you remortgage on fixed and variable rates?
Yes, you can remortgage but those on a fixed rate can expect to pay a penalty.
A homeowner fixing their rate for five years, for example, could expect to pay a penalty of 5% of their mortgage balance if they remortgaged in year one of their mortgage deal and 1% in year five.
Daniel Bailey, founder of mortgage advice firm Middleton Finance, says: “If you are currently on a fixed deal and you want to remortgage most lenders will have an early repayment charge but it’s always worth checking the terms of your deal.
“Virgin Money, for instance, is offering a fix and switch deal whereby a five-year fixed rate deal comes with a two-year early repayment charge.
“Some variable rate mortgages, such as trackers, are usually penalty-free which means you can remortgage at any time during the term of your tracker deal.”
Is it ever a good idea to remortgage and pay the penalty?
Nick Jones, mortgage sales and marketing director for brokerage of Access FS, says: “If the new rate you’re remortgaging on to is significantly lower, savings over time could outweigh the initial penalty.
“But it’s all down to individual circumstance,” he adds. “To understand the potential savings in the longer term, discuss this with a professional before taking action.”
How to compare mortgage deals
The simplest and safest way to compare mortgage deals is to ask a mortgage broker to do it for you.
But if you want to do it yourself here’s three tips for comparing deals:
Tip one
Work out your loan to value ratio (LTV) of your property by dividing your mortgage balance by the value of your home to compare rates from different lenders in the same LTV range.
Tip two
“Don’t be led just by the rate,” says Middleton. “Consider all the costs such as the arrangement fee and any booking fee associated with a deal. The lowest rate may not be the most cost-effective deal.” Arrangement fees can range from £0 to £1,499. Remember to factor in early repayment charges too.
Tip three
Check out what flexible features you might need. “If there’s a chance you’ll move or need to overpay, check for porting options and overpayment allowances,” says Jones. “Some lenders allow penalty-free overpayments of 10% per year.”
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