Types of mortgages: A complete guide to the different types available in the UK

Different types of mortgages

When it comes to mortgages, there is so much information you need to know, not only with regards to mortgage providers, interest rates and additional fees, but you also need to think about the kind of mortgage you actually want.

There are so many different mortgage types and we know how overwhelming it can be to know which one is best for you. In our mortgages explained guide below, we’ll take you through the different types of mortgages so that you’re better prepared.

Types of mortgages

There are two main types of mortgages that you need to be aware of; fixed rate mortgage and variable rate mortgage.

With a fixed-rate mortgage, the interest that you pay usually stays the same for a certain number of years, usually between two and five years. Whereas the interest rate will fluctuate with a variable rate mortgage.

Standard variable rate mortgage

This is the normal interest rate that your mortgage provider will charge you and it lasts for as long as you have the mortgage, or until you switch to another mortgage deal.

Interest only mortgage

This type of mortgage allows you to pay just the interest amount every month for the duration of your loan term and you don’t have to repay the amount that you borrowed until the end of your loan term.

This type of mortgage isn’t quite as common anymore and while it is still possible to get a mortgage this way, it’s probably worth looking around for different options.

What is a lifetime mortgage?

A lifetime mortgage is a loan that’s secured against your home, while you retain ownership. The loan is then paid off when the house is sold in the event of your death or if you move into a long-term care home.

What is a tracker mortgage?

This is a type of variable mortgage as tracker mortgages usually follow the base rate that is set by the Bank of England (BoE), so the payments and interest rates that you pay will fluctuate according to the base rate. 

What is a discount mortgage?

A discount mortgage is another type of variable rate mortgage and it involves the interest rate being set at a lower rate than the mortgage lender’s standard variable rate (SVR), meaning that they can change the interest rate that you pay without waiting for the base rate to change.

Even though you would be getting a discount off the lender’s standard variable rate, it doesn't necessarily mean that you’ll be paying a lower interest rate.

Capped rate mortgage

This mortgage’s rate usually moves in line with the lender’s SVR, but as there’s a cap on it, it means that the rate can’t go above a certain level.

Offset mortgage

Offset mortgages work by linking your savings account and your current account to your mortgage, so you only pay interest on the difference. You still have to make your monthly repayments, but using your savings with an offset mortgage means that you’ll likely pay it off quicker.

Retirement interest-only mortgages

The repayments on this type of mortgage can be often lower than other types of mortgages. Retirement interest only mortgages are available to people aged over 55 and they are secured against the value of your home and you pay the interest every month.

Later life mortgages

Borrowing money later in life isn’t something that many people always want to do, but a later life mortgage enables you to borrow up to a higher age and as with a standard mortgage, you have to pay back the capital and interest on a monthly basis.

Equity release mortgages

An equity release mortgage involves a mortgage lender giving you cash in exchange for a share in the proceeds of the sale of your house later down the line. There are two main types of equity mortgages which include lifetime mortgages and home reversion mortgages.

Shared ownership mortgages

A shared ownership mortgage allows you to part rent/part buy a house. They’re a good way for first-time buyers to buy their first home if they can’t afford a mortgage on 100% of a property.

Self build mortgages

If you plan on building a house yourself, then you can get a self build mortgage to help you pay for the cost of the build and the house itself.

Self-employed mortgage

Before applying for a mortgage if you’re self-employed, you need to be aware that you will have had to be self-employed for a minimum of two years before you can submit your application. You will also have to provide evidence of your income as a self-employed person over the last two to three years if possible.

5 percent mortgages

Known as 95% mortgages, this type of mortgage allows you to purchase your home with just a 5% deposit. While it might seem appealing to put down just a 5% deposit, it might mean that your mortgage repayments are higher each month and your mortgage term may also last longer.

Non-status mortgages

Non-status mortgages are particularly useful for self-employed people. This is because they are offered by lenders who don’t require evidence or proof of income. If you’re self-employed, this might be beneficial to you if you struggle to provide proof of the money you make.

Do I need a good credit score to get a mortgage?

There’s not one exact or universal number that qualifies as a “good” credit score, but it is more than likely that you’ll need a credit score that is considered “good” by most mortgage providers.

Before you start applying for a mortgage, do your research on the best mortgage providers for the type of mortgage that you want, in order to see what credit score you will need to be eligible for a mortgage. If your credit score isn’t quite good enough when you first look into it, you can work on improving your score before you submit your actual application.

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