The pricing relationship between UK two-year fixed and variable mortgages has reversed sharply over seven months, with fixed-rate quotes moving from a seven-basis-point discount in February to a 90-basis-point premium in September 2026.
Finance Gazette analysis of Bank of England data shows a 97-basis-point shift in the difference between the two mortgage categories at 75% loan-to-value (LTV). Two-year fixed quotes climbed from 3.97% to 5.13%, while comparable variable-rate quotes increased from 4.04% to 4.23%.
The reversal highlights how differently mortgage products have been priced despite Bank Rate remaining at 3.75% throughout the period. It also illustrates the widening difference between the initial interest rates offered on fixed and variable products, which carry different risks for borrowers.
The Bank of England's September figures reveal a substantial divergence in fixed and variable mortgage pricing between February and September 2026.
Finance Gazette compared three quoted mortgage products at the same 75% LTV threshold, avoiding differences in deposit requirements when examining their interest-rate movements. The figures represent quoted rates weighted using lenders' reported business volumes, rather than the interest rates actually paid by all mortgage borrowers.
| Mortgage product, 75% LTV | February 2026 | September 2026 | Change |
|---|---|---|---|
| Two-year fixed | 3.97% | 5.13% | +116 bp |
| Five-year fixed | 4.00% | 4.98% | +98 bp |
| Two-year variable | 4.04% | 4.23% | +19 bp |
Source: Bank of England quoted household interest-rate series IUMBV34, IUMBV42 and IUMBV48. Finance Gazette calculations.
The two-year fixed rate recorded the largest increase, rising 18 basis points more than the five-year fixed quote and 97 basis points more than the two-year variable quote.
Five-year fixed mortgage rates also increased substantially, climbing from 4.00% to 4.98%. By September, five-year fixes were quoted 15 basis points below two-year fixes, reversing the February position when they were three basis points more expensive.
The difference between the lowest and highest of the three quoted rates widened from seven basis points in February to 90 basis points in September. The largest change was in the relationship between two-year fixed and variable mortgages, where the fixed product moved from being marginally cheaper to considerably more expensive.
This shift matters for borrowers comparing new mortgage products because the initial interest-rate difference has become substantially larger. However, fixed and variable mortgages have different risk characteristics, and their quoted rates alone do not establish which would be cheaper over the full mortgage term.
The divergence occurred while the Bank of England maintained Bank Rate at 3.75% throughout the comparison period.
At its September Monetary Policy Committee meeting, the Bank voted 6–3 to leave the benchmark rate unchanged, with three members favouring an increase to 4%.
The decision followed a period of higher energy prices and increased inflation risks associated with the conflict in the Middle East. The Bank reported that UK financial conditions had tightened, partly reflecting increases in short-term overnight index swap rates.
Fixed mortgage pricing is influenced by wholesale interest-rate markets, including sterling overnight index swap rates, which reflect market pricing for interest rates over different periods. These can move in anticipation of future monetary policy developments, even when the central bank has not changed its current benchmark rate.
The Bank's September minutes reported that increases in short-term swap rates had continued to pass through rapidly into important lending rates for UK households and businesses. It also noted that quoted two-year fixed mortgage rates were approximately 95 basis points above their level before the conflict, based on information available at the time of the meeting.
That observation is distinct from Finance Gazette's February-to-September calculation of 116 basis points. The Bank's September policy discussion took place before the full month's mortgage-rate data had been published and used a different observation window.
The mortgage statistics demonstrate the divergence in product pricing, but they do not isolate the precise contribution of swap rates, lender competition or individual funding arrangements to the increases recorded.
Variable-rate mortgages have different pricing structures, with some products linked to reference rates and others incorporating lender-specific discounts or premiums. Their quoted rates therefore need not change in the same way as fixed-rate offers.
The increase in fixed mortgage rates was not continuous. Official monthly figures show an initial sharp rise in March and April, followed by a partial decline during the summer and renewed increases in August and September.
Two-year fixed quotes at 75% LTV increased from 3.97% in February to 4.45% in March, reaching 5.14% in April. They subsequently declined to 4.79% in July before rising to 4.92% in August and 5.13% in September.
Five-year fixed rates followed a similar pattern. They climbed from 4.00% in February to 4.96% in April, fell to 4.58% in July and then increased to 4.98% by September.
Variable-rate quotes were considerably more stable. They rose from 4.04% in February to 4.13% in April, fluctuated only modestly through July and reached 4.23% in August, remaining at that level in September.
The pattern shows that the divergence was not confined to a single month. Despite the temporary decline in fixed rates during the summer, the September figures left both two-year and five-year fixed quotes substantially above their February levels.
The two-year fixed quote ended September one basis point below its April high, while the five-year fixed quote exceeded its April level by two basis points. Variable-rate quotes, meanwhile, recorded a much smaller cumulative increase.
The widening gap between fixed and variable mortgage quotes is relevant to households comparing new borrowing options, particularly those approaching the end of an existing mortgage agreement.
In September, the quoted two-year variable rate was 90 basis points below the equivalent two-year fixed rate. That represents a substantial difference in initial advertised interest rates, although it should not be treated as a direct measure of potential savings.
Variable-rate mortgages can expose borrowers to changes in interest rates during the mortgage term. Fixed-rate mortgages generally provide greater certainty over the interest rate payable during the agreed fixed period, but may involve different fees, repayment restrictions or early repayment charges.
There is also an important distinction within the Bank of England's statistics. Its two-year variable-rate mortgage series is not equivalent to its lifetime tracker mortgage series.
According to the Bank's quoted-rate methodology, fixed-term variable mortgages may incorporate a temporary discount relative to a lender's revert-to rate or a premium over Bank Rate or an equivalent reference rate. Lifetime trackers, by contrast, are linked to Bank Rate or a lender's equivalent for the mortgage term.
The two-year variable-rate series was previously called the two-year discounted mortgage series before being renamed in November 2012. Its movement therefore cannot be taken as evidence that all tracker mortgage rates changed by the same amount.
Quoted rates also differ from effective mortgage rates, which measure interest rates actually paid on lending. The advertised rates used in this analysis are useful for examining changes in mortgage pricing, but do not capture every fee, incentive or borrower-specific lending condition.
The widening gap between fixed and variable mortgage quotes shows how borrowing costs can change independently of the Bank of England's benchmark rate. For households entering a new mortgage agreement, the choice between fixed and variable pricing now involves a substantially larger initial rate difference than it did in February.
The findings also underline the importance of looking beyond headline interest rates when comparing mortgage products. Funding conditions, product structures and the potential for future rate changes all influence borrowing costs, while the lowest advertised rate may not represent the cheapest option over the full mortgage term.
