Mortgage Types: A Comprehensive Guide

What is a Mortgage?

A mortgage is a type of loan specifically designed to help you buy a property. When you take out a mortgage, you borrow money from a lender, such as a bank or building society, and repay it in monthly instalments, usually over 20–35 years.

A mortgage consists of:

• The principal – the amount borrowed.

• Interest – the cost of borrowing, set as a percentage of your loan.

• Fees and charges – such as arrangement fees or early repayment charges.

Your monthly payment may also include other costs, such as building insurance, depending on your agreement.

Interest rates in the UK are influenced by the Bank of England base rate. When the base rate rises, mortgage rates usually follow, which means your monthly payments can go up depending on the type of mortgage you have.

Main Types of Mortgages in the UK

Fixed-Rate Mortgages

A fixed-rate mortgage means your interest rate stays the same for a set period, usually 2, 3, 5, or even 10 years. Your monthly payments will not change during this time, making it easier to budget.

Pros: Stability and protection from rising interest rates.
Cons: You could be locked into a higher rate if market rates fall.

Tracker Mortgages

Tracker mortgages follow the Bank of England base rate, plus a set percentage. If the base rate changes, your mortgage payment will go up or down accordingly.

Pros: Benefit when rates are low.
Cons: Payments can rise if interest rates increase.

Standard Variable Rate (SVR) Mortgages

An SVR is the default interest rate you move onto once your fixed or tracker deal ends. SVRs are set by the lender and usually higher than other rates.

Pros: Flexibility, often no early repayment charges.
Cons: Rates can change at the lender’s discretion, making payments unpredictable.

Discount Mortgages

A discount mortgage gives you a reduction on the lender’s standard variable rate for a set period. For example, SVR minus 1%.

Pros: Cheaper initial repayments.
Cons: Payments can rise if the SVR increases.

Interest-Only Mortgages

With an interest-only mortgage, you only pay the interest each month, not the loan itself. At the end of the term, you must repay the full amount borrowed, usually through savings, investments, or selling the property.

Pros: Lower monthly repayments.
Cons: Higher risk, as you must have a clear plan to repay the capital.

Offset Mortgages

An offset mortgage links your savings account to your mortgage. The amount you have in savings is offset against your mortgage balance, so you only pay interest on the difference.

Pros: Can reduce the amount of interest paid and shorten your mortgage term.
Cons: You won’t earn interest on your savings while they’re offset.

Government Schemes and Specialist Mortgages

In addition to mainstream mortgages, there are products designed to support specific groups:

• First-time buyer mortgages often come with competitive rates and lower deposit requirements.

• Help to Buy (closed to new applicants but still relevant for existing borrowers) offered equity loans for new-builds.

• Shared Ownership mortgages allow you to buy a share of a property and pay rent on the rest.

• Guarantor or family mortgages let a family member use savings or property equity as security.

How to Choose the Right Mortgage

The right mortgage depends on your financial circumstances, deposit size, and long-term goals.

1. Assess your budget – look at your income, savings, and existing debts.

2. Check your credit score – lenders use this to decide if you’re eligible and what rates you can get.

3. Decide how long you’ll stay in the property – shorter stays may suit a tracker or discount mortgage, while long-term buyers often prefer fixed rates.

4. Compare lenders – don’t just go to your bank. Mortgage brokers can access deals from across the market.

Costs to Consider

Beyond interest rates, be aware of:

• Arrangement fees – often £1,000 or more.

• Valuation fees – charged by lenders to assess the property’s value.

• Legal fees – solicitors handle the legal side of buying a home.

• Stamp Duty Land Tax (SDLT) – depending on property price and whether you’re a first-time buyer.

The Application Process

When applying for a mortgage in the UK, you’ll need documents such as payslips, bank statements, and proof of ID. Lenders will also check your affordability based on your income and expenses. Getting a mortgage in principle before house-hunting can give you a stronger position with sellers.

Once you apply, the lender will carry out underwriting checks, a property valuation, and, if successful, make a formal mortgage offer. From there, your solicitor will finalise the purchase.

Final Thoughts

Understanding the different types of mortgages in the UK is the first step toward making a confident and informed decision. Whether you choose a fixed-rate mortgage for stability, a tracker mortgage for flexibility, or a more specialist product, the key is to align your choice with your financial situation and long-term plans.

If you’re unsure, speaking with an independent mortgage broker can help you find the best deal and navigate the complexities of the UK mortgage market.