Understanding the different types of mortgages available in the UK can help you make a more informed decision when buying a property, moving home or remortgaging.
From fixed-rate and tracker mortgages to repayment and interest-only options, each mortgage type has different features, benefits and considerations.
At The Residential Mortgage Hub, our experienced mortgage advisers can help you understand your options and find a mortgage suited to your individual circumstances.
When choosing a mortgage, there are two important decisions to consider.
The first is how you intend to repay the money borrowed, either through a repayment mortgage or an interest-only mortgage.
The second is the type of interest rate you choose, such as a fixed rate, tracker rate or another variable-rate mortgage.
Understanding these differences can help you identify which mortgage options may be suitable for your financial circumstances and future plans.
A repayment mortgage, also known as a capital repayment mortgage, is the most common type of residential mortgage in the UK.
Your monthly payments cover both the interest charged by the lender and a portion of the original amount borrowed.
As you make your monthly repayments, the outstanding mortgage balance gradually reduces.
Provided you maintain the required repayments throughout the mortgage term, the mortgage will be fully repaid at the end.
A repayment mortgage offers a straightforward way to repay your mortgage over an agreed period.
Because you are gradually reducing the outstanding balance, you are also building equity in your property, although changes in property values can affect the amount of equity you hold.
Monthly repayments are generally higher than an equivalent interest-only mortgage because you are repaying both capital and interest.
With an interest-only mortgage, your monthly payments cover the interest charged on the loan rather than reducing the original amount borrowed.
This means your monthly payments are generally lower than those of an equivalent repayment mortgage.
However, the full outstanding mortgage balance must still be repaid at the end of the mortgage term.
Lenders will normally require a credible repayment strategy, such as suitable investments, savings or certain property assets, depending on their lending criteria.
Interest-only mortgages are subject to stricter eligibility requirements, and not all lenders offer them for residential properties.
You can learn more about this option in our Interest-Only Mortgage Guide.
A fixed-rate mortgage allows you to secure an agreed interest rate for a specified period, commonly two, three or five years, although other terms may be available.
During the fixed-rate period, your mortgage interest rate remains unchanged, regardless of movements in the Bank of England base rate.
This provides certainty over your contractual monthly repayments and can make budgeting easier.
However, if mortgage interest rates fall, you will not automatically benefit from those reductions while your fixed rate remains in place.
Fixed-rate mortgages may also include early repayment charges if you repay the mortgage or switch products before the fixed period ends.
At the end of your fixed-rate period, your mortgage will normally move onto the lender’s standard variable rate unless you arrange another suitable mortgage product.
A tracker mortgage has a variable interest rate that follows a specified external rate, usually the Bank of England base rate.
For example, a tracker mortgage may charge a fixed percentage above the Bank of England base rate.
If the rate being tracked decreases, your mortgage interest rate would normally decrease accordingly, subject to the product’s terms.
However, if the rate increases, your mortgage interest rate and monthly repayments could also rise.
Some tracker mortgages offer greater flexibility over early repayment charges and overpayments, although this varies between lenders and products.
Tracker mortgages may suit borrowers who are comfortable with potential changes to their monthly repayments.
A standard variable rate mortgage, commonly referred to as an SVR mortgage, has an interest rate set by the individual lender.
Unlike a tracker mortgage, an SVR does not necessarily follow changes in the Bank of England base rate.
Lenders can adjust their standard variable rates in accordance with their mortgage terms.
Borrowers often move onto their lender’s SVR when an introductory mortgage deal ends, unless they arrange a new mortgage product.
SVR mortgages may offer flexibility, including fewer restrictions on overpayments or early repayment, but they are often more expensive than alternative mortgage products.
A discounted variable-rate mortgage offers a specified discount from the lender’s standard variable rate for an agreed period.
For example, a lender may offer a discount of 1% below its standard variable rate for two years.
Although the discount remains fixed during the agreed period, the actual interest rate payable can change if the lender adjusts its SVR.
Discounted mortgages can offer competitive initial rates, but borrowers should consider the possibility of increased repayments and any early repayment charges.
An offset mortgage allows you to link eligible savings to your mortgage account.
Rather than earning interest on the linked savings, the savings balance is used to reduce the amount of mortgage debt on which interest is calculated.
For example, if you have a £200,000 mortgage and £30,000 in eligible linked savings, mortgage interest may be calculated on £170,000.
Depending on the product, this could help reduce your monthly repayments or the overall mortgage term.
Offset mortgages may appeal to borrowers with substantial savings who want to retain access to their money.
However, offset mortgage interest rates and account features vary between lenders, so it is important to compare the overall costs and benefits.
Some mortgage products offer cashback as an additional incentive.
This usually involves receiving a specified cash amount following mortgage completion, subject to the lender’s terms.
Cashback may help towards moving costs, legal fees or other expenses associated with buying or remortgaging a property.
However, a mortgage offering cashback is not necessarily the most cost-effective option.
It is important to consider the interest rate, arrangement fees and overall cost of the mortgage rather than focusing solely on the cashback incentive.
Choosing the right mortgage depends on your individual circumstances, financial commitments and future plans.
Some borrowers prefer the certainty of fixed monthly repayments, while others may value the flexibility offered by certain tracker or variable-rate mortgages.
Your decision may also depend on several factors, including:
There is no single mortgage type that is suitable for everyone.
A mortgage adviser can help you compare the available options and understand the potential benefits and risks before making a decision.
Repayment mortgages are the most common form of residential mortgage. They allow borrowers to repay both the capital and interest over an agreed mortgage term.
Neither option is automatically better. Fixed-rate mortgages provide certainty over your interest rate for an agreed period, while tracker mortgages can benefit from reductions in the rate they follow but may become more expensive if rates increase.
The most suitable option depends on your circumstances and preferences.
It may be possible to change your mortgage product or repayment method, depending on your lender’s criteria and your circumstances.
Early repayment charges or other fees may apply, so it is important to understand the costs before making changes.
Yes. Self-employed borrowers may have access to fixed-rate, tracker and other mortgage products, subject to lender eligibility and affordability assessments.
Lenders will normally assess your income and supporting financial documentation when considering an application.
Understanding the different types of mortgages is an important part of choosing a suitable mortgage.
At The Residential Mortgage Hub, we have access to over 12,000 mortgage products from more than 100 lenders, allowing us to explore a wide range of options based on your circumstances.
Whether you are buying your first home, moving property or remortgaging, our experienced mortgage advisers can guide you through the available options.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount will depend upon your circumstances.
There is no fee for initial mortgage advice before application. A fee may be payable if you decide to proceed, depending on your individual circumstances. Any fee will be discussed and agreed with you before you proceed.
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