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Types of mortgages you can get in the UK

Types of mortgages you can get in the UK

In this day and age, there are many types of mortgages you can take out. Although many people simply look at the interest rate and fees, there is more to it. When you really start looking at the options, you will find that there are quite a lot of them. Before you make a choice on the mortgage that is best for you, you need to understand how they work. After all, choosing the right mortgage could potentially save you thousands. So, choose well. Here are the most common types of mortgages you can get in the UK.

Fixed rate mortgages

Taking out a mortgage is one of the basic steps of buying a house in the UK. So, there’s usually no way around it. When it comes to all the different types of mortgages, this one is quite popular with first-time buyers. Basically, the mortgage rate is fixed for a few years – usually two, three or five. The benefit of this type of mortgage is that you know how much you are paying every month, no matter what happens to interest rates on other mortgages. On the other hand, even if other mortgage rates go down, yours won’t change. If you want to get out of this, you will most likely have to pay a fee.

The mortgage rate is fixed for a few years with this type of mortgage;

Variable rate mortgages

This is actually the basic type of mortgage, the standard variable rate mortgage. With this mortgage, when the mortgage rates change, so does your interest rate. Mortgage rates are partially influenced by the base rate of the Bank of England, but there are other factors that influence it.

There are three main types:

  • Tracker mortgages. If you take out a tracker mortgage, your interest rate “tracks” the base rate of the Bank of England.
  • Discount mortgages. When you take out a discount mortgage, you actually pay the lender’s standard variable rate with a fixed amount discounted.
  • Capped rate mortgages. This is a type of mortgage that has “a cap,” that is, it has a set highest value. Your interest rate cannot rise higher than that. However, this is not something that lenders often offer.

Repayment mortgages

When it comes to these types of mortgages, you basically repay both the interest and the capital each month. At the end of the repayment period, you will have paid back everything. Also, another benefit is that, in the end, you’re the owner of your home.

When you’re looking at mortgages, don’t forget to take into account all the money you will have to spend for the relocation, as well. You can actually save money by calculating your moving expenses in advance. Make sure that you have enough funds for everything that you have planned – for moving, for furnishing, etc.

Interest only mortgages

With interest-only mortgages, you pay off the interest each month. At the end of the repayment period, you repay the capital with money you have saved somewhere else. This is one of the trickier types of mortgages because you have to be certain that you will have enough money when it comes to paying the capital. The advantage is certainly that the monthly repayments are lower than with any other types of mortgages. On the other hand, if you don’t have the money to repay the capital, you might have to sell the house.

With this mortgage, you have to have enough money to pay the capital;

Cashback mortgages

On the surface, this deal sounds great. You take out a mortgage and the lender actually gives you a percentage of the loan back. However, lenders usually do this for marketing purpose and it might not be as great as it sounds. Take a good look at the various fees you may be charged and the interest rate. It just might be you can find cheaper mortgages than this one.

95% mortgages

These types of mortgages are for people who haven’t managed to save up a mortgage deposit. That is, for people who can afford to pay a 5 percent deposit, but not more. However, this is not the best option, since the price of your house can go down quite fast. And soon enough, you will have a house worth less than your mortgage. That is why lenders usually charge a high mortgage rate for this type of mortgage.

Flexible mortgages

When it comes to flexible mortgages, you have enough leeway when it comes to repayment. That is, you pay the amount you have. If you have enough money, you can pay more one month. Then, if you can’t pay the whole monthly amount, you can pay less the next. Also, you can even miss a few payments. However, because of this flexible facet, it is likely (and expected) that the mortgage rate will be quite higher than with other deals.

Another type of flexible mortgages is an offset mortgage, which is linked to your savings account. The lender subtracts your savings from the amount of mortgage that you have to pay interest on. However, remember that for this type of mortgage, your capital repayments are still based on the full loan amount. That is, you still have to repay your loan in full. But, the good side is that the more savings you have, the less interest you have to pay. However, in general, flexible deals can be, and often are, more expensive than conventional deals.

Offset mortgages are connected with your savings account;

Buy to let mortgages

Basically, buy to let mortgages are for people who want to buy property only to rent it. That means that the amount you can borrow is partly based on the amount of rent you think you’ll manage to get. However, if you’re a first-time buyer, it is unlikely that you will be allowed to take out this mortgage. This is usually for landlords renting property for some time, that is, landlords who already have some experience.

How to decide on the best types of mortgages to take out?

Before you take out a mortgage, there are many things you need to consider. Learn more about all these types of mortgages you can get in the UK and then, if need be, consult a financial advisor. Together with you, they will be able to deduce which mortgage is the best for your personal situation.



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