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What are the different types of mortgages in the UK?

There are many different types of mortgages that it’s essential to understand them before getting a mortgage deal. Latest Deals is here to let you know everything about the types of mortgages and how to choose the right one for you.


Repayment mortgage

In this type of mortgage, you will be paying both the loan and interest monthly. If you make all your payments on time, you will have paid off your mortgage by the end of your mortgage term. 

This is the most common type of mortgage. 

Interest-only mortgage

In this type of mortgage, you will only be paying for the interest monthly. Your loan only becomes payable by the end of your mortgage term when you need to pay for it all at once (often, at this stage, people may re-mortgage it). This type of mortgage can be risky, as if you don't have the money to pay off your mortgage, you could lose your property. 

Fixed-rate mortgage

In this type of mortgage, your monthly payments will be the same for a fixed term because your interest rate will be the same. This term is usually around two to five years but can be up to 10 years or even longer, depending on your mortgage deal. After this term, your mortgage will become variable. 

IMPORTANT NOTE: There is no guarantee that your monthly payments will always be the same because other factors can affect them. They usually depend on your mortgage deal. 

Variable mortgage

In this type of mortgage, your monthly payments will vary because your interest rate will change. There are different types of variable mortgages, depending on how the interest rate is changed. This is determined by the lender. 

Usually, they follow the Bank of England base rate, which means that the rates could go up or down according to the changes in the economy. When they follow the Bank of England, they are called tracker mortgages

This type of mortgage can also be called a discount mortgage when they start with a cheaper interest rate.

In some cases, you could get a capped rate mortgage, which gives you a limit on how high your interest rate could go. 

IMPORTANT NOTE: The most common type of variable mortgage is the Standard Variable Rate (SVR). In this type of mortgage, the lender has the freedom to move the rates up or down according to their wishes. Although you can't predict how much the interest rate can change, the lenders will tell you about these changes in advance.

Flexible mortgage

If you get a flexible mortgage, you could be allowed to take payment holidays if you can't pay your monthly payment for some reason. You could also be allowed to make early payments without any charges to pay off your mortgage quicker. This type of mortgage often comes with higher interest rates. 

IMPORTANT NOTE: This type of mortgage can be interesting if you have variable income, making it possible to adapt your mortgage payments to your financial situation at the time.

Offset mortgage

In this type of mortgage, you can link a savings account to make your mortgage payments cheaper. You will need to have a savings account with the same lender. 

For example, if you have a mortgage of £100,000 but have £10,000 in your savings account, your lender will only charge interest on £90,000. 

You can also take your money out from your savings account at anytime, but then, you will no longer be able to use it to make your mortgage “cheaper”.

IMPORTANT NOTE: An offset mortgage means that you won't be able to earn interest on your savings, but you will be able to save interest on your mortgage debt. With this type of mortgage, you will either be able to make your monthly payments cheaper or pay off your mortgage debt earlier. You could also use someone's savings to offset your mortgage. 

95% mortgages

Some financial institutions offer a 95% mortgage, which means you will only need to give a 5% down payment on the property's value, borrowing the 95% remaining. This is not a typical type of mortgage. Usually, you would need to give at least 10 to 20% as a mortgage deposit. 

100% mortgage/Guarantor mortgage 

If you can't afford a mortgage deposit, you might need to apply for a 100% mortgage, also called a guarantor mortgage.  For this type of mortgage, you won't need to pay a deposit, but you will need to have someone to legally back you up financially if you fail to pay your mortgage. Lenders are very rigorous with who they allow as guarantors. Usually, they need to own a property, have a high income and an excellent credit score. 

IMPORTANT NOTE: In some cases, your guarantor will need to give their personal savings or even their properties as a guarantee if you fail to pay your mortgage.

Type of Mortgage Advantages Disadvantages 
Repayment mortgageYou are paying off your mortgage with every payment More expensive monthly payments
Interest-only mortgageCheaper monthly payments It could potentially put you in trouble if you don’t have money saved to pay off your mortgage after the mortgage term 
Fixed-rate mortgageMore stable monthly payments More certainty The interest rates won’t go down Higher interest rates
Variable mortgageMonthly payments could decrease at anytime Monthly payments could  increase at anytime 
Flexible mortgage More flexibility to make overpayments More flexibility for payment holidaysHigher interest rates
Offset mortgageYou can lower your monthly payments You can pay off your mortgage earlier Your savings account won’t earn any interest Higher interest rates
95% mortgageYou need a 5% deposit, making the down payment more affordable Higher interest rates 
Guarantor mortgageYou don’t need a mortgage depositYou can borrow 100% of the property valueHigher interest ratesYou will need a guarantorSome lenders have rigorous requirements for who can be a guarantor

IMPORTANT NOTE: When you choose a mortgage deal it is important to keep in mind that it will combine more than one of these types. 

When you pick a mortgage deal, you need to decide between a repayment or interest-only mortgage and  also between a variable or fixed-rate mortgage. 

At the same time, your mortgage deal can be flexible and offset, for example. 

It’s crucial that you decide what characteristics your mortgage deal must have to find the one that is most suitable for your needs. 

Other types of mortgages 

  • Buy-to-let mortgages

If you are buying a property to rent and not live in, you can apply for a buy-to-let mortgage. This type of mortgage is designed for people that usually already own a property and are buying another one as an investment. It usually comes with higher interest rates and requires a 20% to 40% deposit payment. 

  • Let to Buy mortgages

This type of mortgage is designed  for house owners that want to let their property so they can buy a new one. Let to Buy mortgages are very specific and complicated, so it's recommended to look for professional advice. 

  • Bad credit mortgage

If you have a bad credit score, you could still get a mortgage. Some lenders are specialised in providing bad credit mortgages. This type of mortgage usually comes with higher interest rates. 

IMPORTANT NOTE: There is no guarantee that you can get a bad credit mortgage, so it's always better to improve your credit score. You could get a credit card to help you with that. Read our guides about how to use a credit card to rebuild your credit score. 

  • Self-build mortgage

This is a type of mortgage available to people that want to build a property themselves. To make sure that the builder finishes the property, this type of mortgage is paid in instalments after each stage of the construction. 

IMPORTANT NOTE: Because this is also a complicated type of mortgage, it's essential to look for professional advice. 

Types of Mortgages FAQ 

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