What Types of Mortgage Are Available in the UK?
By Georgia Holmes
Discover the main types of UK mortgage, how interest rates and repayment options work, and what to consider when choosing a mortgage for your home or property investment.
Choosing a mortgage is one of the biggest financial decisions you may make when buying a property. With different interest rates, repayment options and mortgage products available, it can be difficult to know where to start.
The right mortgage depends on your circumstances, including your deposit, income, financial commitments and whether you are buying your first home, moving house or purchasing a property to rent out.
Read on to learn the main types of mortgage available in the UK, how they work and what to consider before choosing one.
What are the main types of mortgage?
Mortgages can be grouped in different ways. Some are defined by how the interest rate works, others by how you repay the loan, and some are designed for particular borrowers or property purchases.
Understanding these differences can help you compare mortgage deals more effectively.
Types of mortgage interest rate
Your mortgage interest rate affects how much you pay to borrow money. The main options are fixed-rate and variable-rate mortgages.
Fixed-rate mortgage
A fixed-rate mortgage keeps your interest rate the same for an agreed period, often two, five or ten years. Your monthly payments usually remain unchanged during this period, assuming your balance and other mortgage terms stay the same.
The main advantage is predictability. You know what your interest rate will be during the fixed period, which can make household budgeting easier even if market rates rise.
However, if interest rates fall, you will not automatically benefit from lower rates. You may also face an early repayment charge if you want to leave the deal before the fixed period ends.
When the deal finishes, your mortgage will usually move to the lender's standard variable rate unless you arrange a new deal.
Variable-rate mortgage
With a variable-rate mortgage, your interest rate can change over time. This means your monthly payments may increase or decrease, making them less predictable than those on a fixed-rate deal.
There are several types of variable-rate mortgage, including tracker, discounted-rate and standard variable rate mortgages.
These deals may suit borrowers who can manage changes in their payments, but it is important to check how often the rate can change and whether early repayment charges apply.
Tracker mortgage
A tracker mortgage follows a specified interest rate, usually the Bank of England base rate, plus an agreed percentage.
For example, if your mortgage tracks the base rate at 1 percentage point above it, your mortgage rate would be 5% when the base rate is 4%. If the base rate rose or fell, your mortgage rate would normally move accordingly, subject to the product's terms.
Tracker mortgages can become cheaper when the rate they follow falls, but payments can rise when that rate increases. Consider whether your budget could cope with higher repayments before choosing this option.
Discounted-rate mortgage
A discounted-rate mortgage offers a reduction against the lender's standard variable rate for a set period.
For example, if a lender's standard variable rate is 6% and your deal offers a 1.5 percentage point discount,…