If you're looking to buy a property in the UK, you'll need to decide on a mortgage type. With so many options available, it can be overwhelming to know which one is right for you. Here's an overview of some of the different types of mortgages available in the UK.
Fixed-rate mortgages: With a fixed-rate mortgage, your interest rate is set for a specific period, typically between 2 and 10 years. This means that your monthly payments will stay the same during this period, regardless of any changes in the Bank of England base rate or the lender's standard variable rate.
Standard variable rate mortgages: A standard variable rate (SVR) mortgage is the lender's default rate. Your monthly payments can go up or down depending on changes in the lender's SVR, and you're free to switch to a different mortgage product at any time.
Tracker mortgages: Tracker mortgages have an interest rate that's tied to the Bank of England base rate, plus a set percentage. This means that your interest rate and monthly payments will fluctuate in line with the base rate, and can go up or down.
Discount mortgages: Discount mortgages offer a discount on the lender's standard variable rate for a set period of time. This means that your monthly payments will be lower during this period, but will go up if the lender's standard variable rate increases.
Offset mortgages: With an offset mortgage, you link your savings account to your mortgage. The money in your savings account is then offset against your mortgage balance, which reduces the amount of interest you pay. You can still access your savings, but the more you have in your account, the less interest you'll pay on your mortgage.
Interest-only mortgages: With an interest-only mortgage, you only pay the interest on the loan each month, and not the capital. This means that your monthly payments will be lower, but you'll need to have a plan in place to pay off the capital at the end of the mortgage term.
Buy-to-let mortgages: Buy-to-let mortgages are specifically designed for people who want to buy a property to rent out. They typically have higher interest rates and require a larger deposit than standard residential mortgages.
Shared ownership mortgages: This is a type of mortgage where you purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share. You'll typically need to take out a mortgage to finance your share of the property, and you'll be responsible for paying the mortgage payments, as well as the rent.
Let-to-Buy mortgages: This option allows you to rent out your existing property while using the equity to purchase a new property. This can be a good option for homeowners who want to move but don't want to sell their current property. With a Let-to-Buy mortgage, you'll typically need to take out two mortgages - one on your current property (to convert it to a rental property) and one on your new property (to live in). You'll use the equity in your current property to provide the deposit for your new property.
Product transfer mortgage: This is a type of mortgage offered by your current lender when your fixed-term mortgage is coming to an end. Instead of remortgaging with a new lender, you can choose to stay with your current lender and transfer to a new mortgage product. This can offer convenience, potentially lower fees (no valuation or legal fees), and sometimes loyalty rewards. However we always advise speaking to a mortgage broker when your current deal is about to come to an end to see what else is available to you just in case there is a more suitable or money-saving option for you rather than automatically staying with your existing lender.
In conclusion, there are many different types of mortgages available in the UK, each with their own pros and cons. It's important to do your research and we highly recommend speaking to a mortgage broker, such as ourselves, as we have access to multiple lenders and mortgage deals and can scout the market to find you the most suitable deal for your circumstances.
