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There are many types of mortgages in the UK, and choosing the right one can affect both your monthly payments and the total you repay. This guide explains how the main mortgage types work and how to choose the right one for you.
KEY INFORMATION
Here are the main types of mortgages to choose from:
When you’re taking out a mortgage, one of the biggest decisions is whether to take out a fixed rate or a variable rate mortgage. So it’s vital that you understand the difference between these types of mortgages so that you can pick the right one for you.
A fixed rate mortgage is a home loan where the interest rate and monthly payments stay the same for a set period, usually 2, 3, 5 or 10 years.
Fixed rate mortgages are a popular option, because you know exactly what your monthly repayments will look like over a set period.
However, if mortgage rates improve in the short-term, you could be left paying more on your mortgage than you need to.
Read more in our guide Fixed rate mortgages: pros & cons, latest rates and how to apply.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Variable rate mortgages are different to fixed rate mortgages because the rate you pay can go up or down. There are three different types of variable rate mortgages and they each work in different ways.
If you take out a tracker mortgage, the rate you pay goes up and down in line with the Bank of England’s base rate.
Tracker mortgages usually last for between two to five years, after which the rates revert to the lender’s standard variable rate (which is invariably a lot more expensive).
Read more in our guide Tracker mortgages explained.
Unlike tracker mortgages, which track the Bank of England base rate, with this type of mortgage, the rate you’ll pay is linked to the lender’s standard variable rate.
A standard variable rate mortgage is the type of variable rate mortgage you’ll usually be moved to when your fixed rate, tracker or discounted mortgage deal ends.
Also, if your current mortgage deal ends in the next six months, start investigating your remortgage options ASAP, to avoid rolling onto your lender’s SVR when your current deal ends.
In most cases, the disadvantages of the SVR outweigh the advantages. However, everyone’s circumstances are different. So the best way to find out if staying on your lender’s SVR is right for you is to speak to a mortgage broker.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Whether you take out a fixed or variable rate mortgage, you’ll usually take it out for 2, 3 or 5 years, however some 7 and 10 year terms (or even longer) are available.
You’ll need to weigh up how long you’ll want to be tied into your deal for.
You’ll also need to decide whether you want to take out a repayment mortgage or an interest-only mortgage. However, most people will only be able to take out a repayment mortgage.
Here is how these mortgage types work:
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
The types of mortgages available will depend on what type of buyer (or remortgager) you are. This is because buyer type determines eligibility, deposit size and affordability rules.
You may have a number of different types of mortgages available to you if you’re a first time buyer. These may let you:
Read more in our guide to First time buyer mortgages.
This is the type of mortgage (or remortgage) for people taking out a loan on a property they will live in.
If you take out a residential mortgage, you can’t usually let the property out unless you have consent from your lender.
These are usually repayment mortgages and typically have lower mortgage rates than a Buy to Let mortgage.
You’ll usually need at least a 5% deposit to take out a residential mortgage, although you can get a mortgage with a smaller, or even no deposit.
This is the most common reason for getting a mortgage in the UK.
Buy to Let mortgages are the type of mortgage landlords take out if they’re buying or remortgaging a property that will be let out to tenants.
Buy to Let mortgages are similar to residential mortgages but there are some key differences:
This type of mortgage is also designed for people who are letting out a property but they work differently because Let to Buy involves renting out your current home and buying a new one to live in:
This allows you to keep your original property as an investment, with the aim of earning rental income and benefiting from any increase in property value.
Let to Buy is also a popular option with couples wanting to move in together, but each have their own property. In this case, you could both move into one of the properties and rent the other one out using a Let to Buy mortgage.
Not sure whether to sell up or rent out? Read our guide on when letting a property makes sense
An offset mortgage is a type of mortgage that allows you to use your savings to reduce the amount of interest you pay on your mortgage.
The downside of an offset mortgage is that you won’t earn interest on the savings that you have with the lender. They also tend to have slightly higher interest rates. Find out more about offset mortgages, the pros and cons and how they work.
Guarantor mortgages are a type of mortgage that allow a relative to act as a guarantor, using either savings or their own property as security.
You can usually borrow a larger amount than you would be able to on your own. In fact some guarantor mortgages will let you borrow 100% of the property’s value.
Find more information on how guarantor mortgages work, the risks and popular options such as Barclays Family Springboard.
Green mortgages reward you for saving energy in your property.
| Mortgage types | Pros | Cons |
|---|---|---|
| Fixed rate mortgage | Repayments won’t go up. Easier to budget. Removes uncertainty. | Rates won’t go down if base rate falls. High fees to leave deal early. |
| Tracker mortgage | Rate could go down. Rates are transparent & go up and down in line with base rate. Some deals come with no fee if you leave early. | Repayments can increase. Initial rate may be higher than for fixed rate mortgages. |
| Standard variable rate mortgage | While not the best deal for most people, they may be suitable for some people. | More expensive. Lenders can charge what they want. Repayments can change at any time. |
| Offset mortgage | You can use savings to lower your interest repayments. More flexible. | You won’t earn interest on your savings. Rates tend to be slightly higher. |
| First time buyer mortgage | May be able to borrow more based on income. Available for lower or even no deposit. | Not guaranteed to be the best deal. |
| Guarantor mortgage | You can borrow larger amounts. | You need a guarantor and they face significant risks. |
| Green mortgage | You may get a cheaper rate or cashback. | Only available on certain properties. May not be the best deal. |
The most common mortgage term length has traditionally been 25 years, however the average length of mortgage for first time buyers has increased in recent years.
In fact, the number of borrowers taking out ultra-long mortgages of more than 35 years has tripled since 2020, according to Thisismoney.co.uk.
Taking a mortgage out over a longer term can make repayments more affordable. However, it also means you’ll pay more interest over the life of your mortgage.
See our guide on 30 year mortgages to weigh up the pros and cons of a longer mortgage term.
The easiest way to find the best mortgage is to speak to a mortgage broker and they’ll do the hard work for you.
They’ll discuss your personal situation and help you understand the different types of mortgages available so you can choose the best mortgage for your needs. Plus, they may have access to broker-only deals.
As well as finding you the best rate, a mortgage broker will also match you to the lender most likely to accept your application.
The main types of mortgages are fixed rate, tracker, discount and standard variable rate mortgages. You will also need to choose whether your mortgage is repayment or interest-only, which affects how the loan is paid back.
With a repayment mortgage, you pay back both the loan and the interest each month, so the mortgage is fully paid off at the end of the term. With an interest-only mortgage, you only pay the interest, meaning you must repay the original loan separately.
A fixed rate mortgage gives certainty, as your payments stay the same for a set period. Variable rate mortgages can be cheaper initially but may rise or fall over time. Which is better depends on your budget and attitude to risk.
Most first time buyers can choose from the types of mortgages as existing homeowners, although interest-only mortgages are less common. Some deals are specifically designed for first time buyers, often with smaller deposit requirements.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
