Fixed or discounted rate mortgage?

A fixed rate mortgage locks your interest rate for a set number of years, so your monthly payment does not change during the deal. A discounted rate mortgage is a variable rate: for a set period you pay the lender's standard variable rate (SVR) minus a fixed percentage, so your payment rises and falls as the SVR moves. Fixed rates are the most common choice, taken out by most homebuyers and by homeowners remortgaging¹.

The practical difference is certainty. With a fixed rate, your rate will not change during the deal, whatever happens to interest rates generally². With a discount, the discount itself is fixed but the rate it is taken from is not: the lender can change its SVR whenever it likes, so the deal is still a variable rate mortgage³. Discounted deals typically run for two to five years⁴.

Both types end the same way. When the fixed or discount period finishes and you do nothing, the mortgage moves onto the lender's standard variable rate, which is usually much more expensive¹. Lenders often get in touch about a new deal around three to six months before the current one ends⁵.

A discounted rate tracks the lender's SVR, a fixed rate does not

A discount mortgage is a home loan where the interest rate is pegged at a set amount below the lender's standard variable rate, either for a set period such as two or five years, or for the whole mortgage¹. The Financial Ombudsman Service describes them as mortgages that charge your lender's SVR minus a fixed percentage⁶. So if a lender's SVR is 5% and the deal charges the SVR minus 2%, you pay 3%⁷.

The catch is what sits underneath. Each lender sets its own SVR at whatever level it wants, and it is usually much higher than the rate you would get on a fixed, tracker or discount deal⁸. SVRs are not directly linked to the Bank of England base rate, though they are often affected by it, and they do not change very often⁹. But they can change by any amount and at any time, which means your monthly repayments might not be the same each month¹.

A fixed rate works the other way. Your interest rate is fixed for an agreed period and your monthly payments stay the same regardless of any changes to interest rates¹⁰. The rate cannot be changed once the agreement is made¹¹. That is the whole point of the product: certainty for the length of the deal.

The two types also differ in what they are priced against. A tracker mortgage, by contrast, is a variable rate deal that tracks the Bank of England base rate plus a set percentage⁸. A discount tracks the lender's own SVR, which the lender controls. That distinction matters when the base rate moves but a lender chooses not to pass the change on, or moves its SVR for its own reasons.

Fixed or discounted: how each one behaves when rates change

When interest rates fall, a discounted rate can work in your favour: your rate stays below your lender's SVR for the duration of your deal, and in certain economic circumstances you could be paying a very low interest rate¹. When rates rise, the same mechanism works against you, because the SVR can go up and your payment with it.

A fixed rate removes that movement entirely. If you are on a fixed rate mortgage, your rate will not change². A fixed rate gives you the assurance that during the fixed rate period, your monthly payment will not change¹². The trade-off is symmetrical: if the lender's standard rate falls below your fixed rate, you will lose out¹³.

The market context shapes which type looks cheaper at any given moment. While rates are falling, they remain significantly higher than in the 2010s, and on that basis fixed-rate mortgages generally offer a better deal¹. But the picture is not uniform across deal lengths: the most competitive rates are usually on two-year fixes, which tend to be around 0.2 to 0.3 percentage points lower than the best five-year options¹⁴.

There is also a structural point about how discounts are priced. The longer the discount period, the smaller the amount of the discount tends to be¹. A lender committing to a below-SVR rate for five years will usually offer a narrower gap below the SVR than on a two-year deal.

What happens when the fixed or discount period ends

Both types revert to the same place. A standard variable rate mortgage is what you are transferred onto when a fixed, tracker or discount deal comes to an end⁹. If you do nothing when your fixed rate ends, you will usually be moved to a standard variable rate mortgage⁵. Lenders describe the same process in their own terms: Nationwide customers revert to its variable Standard Mortgage Rate¹⁵, first direct customers revert to the Standard Variable Rate unless they successfully apply for another deal¹⁶, and Bank of Ireland UK customers see the mortgage switch to its Standard Variable Rate¹⁷.

The rate you land on can be materially higher. One lender notes that the rate of interest you go to once your discounted rate has finished can be higher¹⁸. Another states that when the discount comes to an end, unless you take out another mortgage product, the interest rate will be linked to its SVR for the rest of the mortgage term¹⁹.

The good news is that you get warning and time. Your lender will talk to you about a new deal about three to six months before the end of the one you have now⁵. If a lender changes its SVR and all or part of your mortgage is on a variable or discounted rate, it will write to you before your next payment is due with the new rate and new monthly payment²⁰.

Your options at that point are to remortgage to a new deal, with your current lender or a different one, or to take a product transfer with your existing lender. If you do neither, the SVR applies. It is worth checking whether an early repayment charge applies if you want to leave before the deal period actually ends.

Where a discount gives less certainty than it seems

The headline attraction of a discount is a rate below the SVR. The uncertainty is that the SVR is not a fixed reference point. The lender can change the SVR interest rate whenever it likes, so the deal is still a variable rate mortgage³. A discount of 1% below the SVR sounds like a guarantee of a cheap rate, but it is a guarantee about the gap, not about the rate you pay.

Some deals also carry a floor, sometimes called a collar. If the lender's SVR is 5% and they offer a mortgage with a 3% discount, your initial interest rate is 2%. But if there was a collar of 2%, even if the SVR later dropped to 3%, your rate would not go lower than 2%¹. That limits how far your payment can fall if rates drop sharply.

There is a second layer of uncertainty in how the discount is structured. Some lenders apply a discount for a set period and then revert to the SVR prevailing at the time²¹. Others apply a discount that runs for the whole term of the loan, which changes the calculation entirely. The paperwork for each deal sets out which applies, and the difference matters over a long mortgage term.

Finally, the size of the discount and the length of the deal pull against each other. A bigger discount over a shorter period is the more common pattern, and the longer the discount period, the smaller the amount of the discount tends to be¹. A long discount period is not automatically better value than a short one with a deeper cut.

Is a discounted mortgage the same as a tracker mortgage?

No, and the difference is worth understanding before choosing between them. A tracker mortgage is a variable rate deal that tracks the Bank of England base rate plus a set percentage⁸. A discounted rate is pegged below the lender's own SVR, which the lender sets and can change independently of the base rate¹.

That means the two can move at different times and by different amounts. A tracker moves when the base rate moves, mechanically. A discount moves when the lender decides to change its SVR, which is not directly linked to the base rate even though it is often affected by it⁹.

In the current market, trackers have been the cheaper option at the headline level. Tracker mortgages currently offer borrowers the lowest rates, though only marginally below 4%²². Trackers continue to be the only mortgage type that offers rates of less than 4%²³. And of the 100 mortgages with the lowest rates, none were fixed-rate mortgages: every deal was either a tracker mortgage or a discount variable rate²⁴.

That last point is worth pausing on. Discounted variable rates do appear among the cheapest deals on the market, even though fixed rates dominate overall lending volumes. Historically, fixed rate loans accounted for 92% of the market in 2017²⁵. The two facts sit together: fixed rates are what most borrowers choose, but discount and tracker deals often carry the lowest headline rates.

Current fixed rates across lenders

Fixed rates remain the mainstream product, and the average rates give a sense of the market. The average five-year fixed mortgage rate has climbed to 5.91%, its highest since October 2023, and the average two-year fixed rate stands at 5.87%²⁶. These are averages across the market, not the rate any individual borrower would be offered.

Individual lenders price across a wide range depending on loan to value, term and borrower circumstances. On the discount side, one lender applies a discount of 0.75% below its SVR from the end of the initial fixed or variable rate period until 31 January 2032 on certain additional loan products²⁷. Another offers a 1.50% discount off its SVR for the term of the loan on residential purchase and remortgage products²⁸. A third gives two-year residential products a 1% discount from the SVR for three years when the initial rate period comes to an end, with all other products reverting to the SVR after the initial rate period²⁹.

The pattern across lenders is that discounts are usually expressed as a percentage below the SVR, and the length of the discount period varies. Some run for a fixed number of years, some for the whole term. The rate you actually pay depends on the SVR at the time, which the lender can change.

Who each type tends to suit, and what protects you

A fixed rate suits a borrower who wants a payment that does not move, and who values knowing exactly what will leave their account each month for the deal period¹². A discounted rate suits a borrower who is comfortable with the payment changing, and who wants a rate that sits below the SVR and can fall if the lender's SVR falls¹. Neither is better in the abstract; they carry different risks.

The protections are the same for both. Your lender must write to you before your next payment is due if it changes its SVR and you are on a variable or discounted rate, setting out the new rate and new monthly payment²⁰. Lenders contact borrowers about a new deal around three to six months before the current one ends⁵. If you have a complaint about the interest rate applied to your mortgage, the Financial Ombudsman Service can look at it⁶.

If you are struggling with payments, free and impartial help is available. StepChange offers mortgage guidance and a mortgage checklist³⁰, and Citizens Advice can help with borrowing decisions¹¹. Your lender will also discuss options with you before the deal ends.