Every UK mortgage is defined by two choices: how you repay the loan (repayment or interest-only) and how the interest rate is set (fixed, tracker, discount or the lender's standard variable rate). On top of that sit specialist mortgages for particular situations, such as offset, guarantor, shared ownership and later-life lending. Once you see it that way, comparing deals becomes much simpler.
This guide maps out each type, who it suits and the catches. If you are mainly choosing between a fixed rate and a tracker, our fixed vs tracker comparison goes into more detail.
Choice 1: how you repay
With a repayment mortgage, each monthly payment covers interest and some of the loan, so you own the home outright at the end of the term. With an interest-only mortgage, you pay just the interest and still owe the full loan at the end, so you need a credible plan to repay it, such as investments or selling. Lenders are strict about interest-only for residential homes, and it is most common on buy-to-let.
| £200,000 over 25 years at 4.5% | Repayment | Interest-only |
|---|---|---|
| Monthly payment | £1,111.66 | £750.00 |
| Total interest | About £133,500 | £225,000 |
| Owed at the end | £0 | £200,000 |
Some lenders offer part and part, splitting the loan between the two. Try different terms in our mortgage calculator.
Choice 2: how the rate is set
This decides whether your payment can change during the deal.
- Fixed rate: the rate stays the same for a set period, usually two, three, five or ten years. Your payments are predictable, but you usually pay an early repayment charge (ERC) to leave early
- Tracker: the rate follows Bank of England Bank Rate (3.75% at the time of writing) plus a set margin, so payments rise and fall with it. Some trackers have no ERCs, which suits people expecting to move or overpay
- Discount: a set discount off the lender's standard variable rate. The lender can change its SVR at any time, so payments are less predictable than a tracker
- Standard variable rate (SVR): what you move to when a deal ends. It is usually much higher than deal rates, so most people remortgage or switch product before it kicks in
- Capped rate: variable, but with a ceiling. Rare in the UK today
Offset mortgages
An offset mortgage links your savings to your mortgage. You pay interest only on the difference, so £20,000 of savings against a £200,000 mortgage means you are charged interest on £180,000. You earn no interest on the savings but pay no tax on the benefit either, which suits higher-rate taxpayers and people with large savings who want to keep them accessible. Offset rates are often a little higher than standard deals. See our offset mortgage guide.
Mortgages for first-time buyers and small deposits
Several types help buyers who cannot raise a large deposit or borrow enough alone.
- High loan-to-value mortgages: 95% mortgages, and a small number of 100% products, need a smaller deposit but come with higher rates and stricter affordability checks
- Guarantor mortgages: a family member guarantees the debt, sometimes with their savings or property as security
- Joint borrower, sole proprietor: a relative is named on the mortgage to boost affordability but not on the deeds
- Shared ownership: you buy a share of the home and pay rent on the rest. See our shared ownership guide
- Family springboard or deposit-backed mortgages: a family member places savings with the lender for a set period instead of gifting a deposit
Buy-to-let and later-life mortgages
Buy-to-let mortgages are for properties you rent out. Affordability is based mainly on expected rent, deposits are usually at least 25%, and most are interest-only. Retirement interest-only mortgages let older borrowers pay just the interest, with the loan repaid from the sale of the home when they die or move into care. Lifetime mortgages, the most common form of equity release, usually need no monthly payments, with interest rolling up and repaid from the estate. Both are long-term commitments, and you should get regulated advice first.
Home purchase plans
Home purchase plans are an alternative structured to comply with Islamic finance principles. Instead of charging interest, the provider buys the property and you buy it back gradually while paying rent, or the provider sells it to you at a higher price paid in instalments. They are regulated in a similar way to mortgages and are available from a small number of providers.
How to choose
Start with these questions, then speak to a whole-of-market mortgage broker.
- Could your budget cope if your payment rose by £100 or £200 a month? If not, a fixed rate is safer
- Do you expect to move, overpay heavily or pay off a large lump sum in the next few years? Look at ERC-free trackers or deals with generous overpayment allowances, and test the effect with our mortgage overpayment calculator
- Do you have large savings? An offset mortgage may be worth comparing
- When does your current deal end? Start looking about six months before; our remortgage guide explains the steps
Frequently asked questions
What are the main types of mortgage in the UK?
Is a fixed or tracker mortgage better?
Can I get an interest-only mortgage on my home?
What happens when my fixed rate ends?
What is an early repayment charge?
- mortgage types
- fixed rate mortgage
- tracker mortgage
- interest-only
- first-time buyer