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What are the Different Types of Mortgages Available in the UK?

A guide to all the different types of mortgages available in the UK

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Different Types of Mortgages Available in the UK

If you’re looking to buy a new home and want more information regarding how many different types of mortgages there are in the UK, you’ve come to the right place.

Even for more experienced house buyers, the different types of mortgages available across the market can feel a little overwhelming, which is why we’ve produced this guide.

The following topics are covered below… 

If you’d like to receive more information on all the different types of mortgages, or if there’s any aspect you’d like explained in more detail, call us on 0808 189 2301 or make an enquiry. We’ll then arrange for an expert broker to contact you directly.

What different types of mortgages are there?

The short answer is many, which is good news if you don’t really have any preconceived ideas about the type of mortgage you’re looking for. The more choice usually means you can take your time, be patient, and eventually you will find an offer or type that suits your circumstances.

One of the first things to consider is how you want to repay the loan amount.

For mortgages, there are two main repayment options available to you: 

  • Capital and interest (repayment): The borrower pays off the interest and loan balance through monthly instalments.
  • Interest only: The borrower only pays off the interest each month and settles the loan balance at the end of term via a pre-agreed repayment vehicle.

Once you’ve decided on a repayment option, you then need to choose how you want to repay the interest during the mortgage term.

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The choices you have can include any of the following: 

In addition to the interest rate, there are a range of mortgages designed to help those who may not have significant cash reserves or equity for large deposits, such as: 

The above options are particularly attractive to first-time buyers who may also find these different types of mortgages suit their particular circumstances:

There are also a range of different types of mortgages specifically designed to help businesses or those purchasing for investment purposes, such as:

Mortgages are not just for helping people buy houses during their working life, they can help those who are now in retirement and need to release equity in their homes.

The options available here include:

If you’d like to know more about a specific type of mortgage listed above, get in touch and we can arrange for an advisor we work with to speak with you.

Different mortgage types explained

In this section, we provide you with a brief outline of the types of mortgages available and how they work. 

Repayment mortgage (capital and interest)

A repayment mortgage is the most traditional type of mortgage available in the UK. Throughout the term of your mortgage, you will pay back a proportion of both capital and interest with every payment. 

A higher proportion of interest is paid at the outset with the capital element increasing throughout the term. By the end, all the capital is repaid. 

Interest-only mortgage

As the name suggests, the capital and interest elements are kept completely separate with an interest-only mortgage. Your regular payments will only consist of the interest and you use a separate repayment vehicle to pay back the capital at the end of the term. 

Repayment vehicles can include: 

  • Cash savings
  • Property sale
  • Pension tax-free lump sum
  • Investments

Keep in mind that lenders will generally need to check that any repayment vehicle will be sufficient to repay the mortgage at the end of the term.

Fixed-rate mortgage

With a fixed-rate mortgage the amount of interest you’re charged remains the same for a set number of years (usually between two and five years but some lenders will offer 10 or even 15 years, at the time of writing). Once the fixed-rate period ends you can select another option if you wish. 

The benefit of a fixed-rate mortgage is that your payments remain the same and will not be liable to fluctuations during this period making it simpler to manage your finances. 

Standard variable rate (SVR) mortgage

Interest rates for variable rate mortgages can fluctuate at any time during the term. With an SVR mortgage, you pay the standard rate charged by your lender. The rate will usually change in line with the Bank of England base rate. 

With an SVR mortgage you are not tied in to any fixed-term arrangement, therefore, you have the freedom to change onto a better deal at any time. 

Discount rate mortgage

A lender may offer a discount from their usual standard variable rate (SVR) for a particular period of time (normally up to a maximum of three years). SVRs will differ from lender to lender, so therefore it’s important to look at the interest you will be paying and not necessarily the size of the discount. 

Make an enquiry today and we’ll put you in touch with an expert with whole-of-market access, meaning that they can find you the best deals for this type of mortgage. 

Tracker mortgage

A tracker mortgage is a variation of a variable rate mortgage where the interest will track the movement of a particular rate (normally the Bank of England base rate) within a predetermined margin. 

For example, if the Bank of England base rate is 1.8%, your tracker mortgage might be set 0.5% above that, so you pay 2.3%. If the base rate moves up to 2%, then you pay 2.5%. 

Capped or collared rate mortgage

Both capped and collared rate mortgages are types of variable rate mortgage. A capped rate mortgage places a limit on how high the interest rate can rise, and a collar places a stop on how low a rate can fall. 

Offset rate mortgage

An offset mortgage allows you to use your savings to offset the amount of interest you pay. You need to link your mortgage account to a current account and place your savings into this account. 

For example, if you have a mortgage for £150,000 and you place £20,000 savings into a nominated current account, you will only pay mortgage interest on £130,000. This means you can repay your mortgage quicker if you’re happy to forgo interest on your savings.

Low deposit mortgages

If you’re a first-time buyer and finding it difficult to raise sufficient cash funds to pay a large deposit to buy a house, don’t panic! There are certain lenders who will offer mortgages for people with low deposits. 

Depending upon the strength of your application, some lenders may be willing to offer you a 95% mortgage, which would only require a 5% deposit. A few may also consider 100% mortgages. 

If you’d like to know more about how you can acquire a mortgage with a low deposit, make an enquiry and we can arrange for a specialist to get in touch. 

Low-start mortgage

A low-start mortgage can be particularly attractive for a first-time buyer as it allows for lower repayments at the beginning of the term, leaving more spare income to pay for other moving and possible renovation costs. 

Cashback mortgage

Once you have completed the mortgage process some lenders will offer you a cashback payment (usually between £500-£1000) which can be put towards any removal or decoration costs for your new home. 

Flexible mortgage

As the name suggests, a flexible mortgage allows a degree of flexibility around repayments. You can overpay when you have spare disposable income or underpay for a period when your income is not so high. 

Flexible mortgages can also offer brief payment holidays if, for example, you are in between jobs. 

Buy-to-let mortgage

If you are looking to purchase a property with the sole aim of renting it out then, a buy-to-let mortgage would usually be the best type of lending for this purpose. 

You may end up paying a slightly higher rate compared with a standard mortgage, though as always, it will be based on your circumstances. To see if this type of mortgage is suitable for you, make an enquiry today. 

Commercial mortgage

If you are running a business and would like to buy a property for your commercial activity, then a commercial mortgage would usually be the most appropriate type of mortgage for this purpose. 

If you’d like to know more about how commercial mortgages work, get in touch and we’ll arrange for a commercial specialist to contact you and discuss further. 

Lifetime mortgage

A lifetime mortgage allows you to release equity from within your main UK residence. Rather than make regular interest payments, all the interest is rolled up and paid back when you either die or move into a care home. 

Lifetime mortgages are only available if you are at least 55 years of age. 

Retirement interest-only mortgage

A retirement interest-only mortgage is slightly different to a lifetime mortgage as it includes the option of making regular interest payments over a set term rather than allowing the interest to roll up. 

Speak to a mortgage expert

There’s never been a wider choice of mortgage options available for anyone who needs lending assistance with either a house move or to release equity from within their home. 

If you’d like to speak with someone who can offer assistance with any of the different types of mortgages mentioned, above call us today on 0808 189 2301 or make an enquiry online. 

The advisors we work with have a wealth of experience in all areas of mortgage lending and deal with customers in your situation all the time. 

Mortgage Types Information

Looking for specialist advice? Read through our articles about different types of mortgages and how best to prepare yourself to find the right mortgage for you.

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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