Mortgage Types Explained

With a fixed-rate mortgage, your interest rate is locked in for a set period. That means your monthly payment stays the same, no matter what happens to interest rates in the wider market.

Fixed periods typically run from 2 to 10 years, though some lenders offer longer terms (up to 40 years in some cases).

When your fixed deal ends, you'll usually move onto the lender's standard variable rate (SVR) unless you remortgage to a new deal.

Why people choose fixed rates

• Easy to budget – your payment is the same every month.
• Protection if interest rates rise.
• Helpful if your income is steady and you dislike financial surprises.

Things to watch

• If interest rates fall, you won't benefit until your fixed deal ends.
• Early repayment charges (ERCs) can apply if you switch or repay too much during the fixed period.
• Some lenders limit overpayments to a percentage each year (often 10%).

With a variable-rate mortgage, your interest rate can change during the deal, which means your monthly payments can go up or down.

There are two main flavours most people will see:

1. Discount Mortgages

A discount mortgage gives you a set discount off the lender's SVR for a fixed period: e.g. "SVR minus 1% for two years".

• If the SVR goes up, your rate and payment go up.
• If the SVR goes down, you benefit too.
• Once the discount period ends, you pay the full SVR unless you switch.

Good for you if…

• You can cope with your payment changing from month to month.
• You want the flexibility to overpay or leave early (check charges – they vary).
• You think rates might fall, or at least not rise too sharply.

2. Standard Variable Rate (SVR)

This is the lender's own default rate. You'll usually end up here when a fixed, tracker or discount deal finishes – unless you switch.

• The lender can change it whenever they choose.
• There's usually no tie-in period, so you can leave without early repayment charges.
• It's often higher (more expensive) than other deals from the same lender.

Most people only sit on an SVR briefly, or avoid it altogether by remortgaging.

Why people choose variable deals

• Flexibility
• Ability to leave without heavy charges
• Potential to benefit if rates fall

What to watch out for

• Payments may rise
• Terms vary a lot by lender
• Harder to budget than fixed deals

Tracker mortgages follow an external rate, usually the Bank of England base rate, plus or minus a set margin.

Why people choose trackers

• Competitive (cheaper rates).
• Very transparent – you know exactly what you're tracking.
• Immediate benefit - lower monthly payments, if the base rate falls.

What to watch for

• These are high risk mortgages. If the base rate rises, your payments will go up, sometimes quickly.
• Some trackers still have early repayment charges or tie-ins.
• There may be a minimum rate (a "collar") below which it can't fall.

With an interest-only mortgage, you only pay the interest each month. Your monthly payments are lower, but you don't reduce the actual debt.

At the end of the term, you still owe the full amount and need a plan to repay it, for example:

• Selling the property.
• Using investments or savings.
• Using other assets (pensions, bonuses, property sales).

Residential interest-only

For people living in the property, lenders are stricter:

• You'll usually need a solid repayment plan and higher income or assets.
• There may be a maximum loan-to-value (LTV), often much lower than on standard repayment deals.

Buy-to-let interest-only

Most buy-to-let mortgages are interest-only by default (see the buy-to-let section below). Landlords often plan to repay by selling or refinancing.

Offset mortgages link your savings to your mortgage balance.

You still have your savings in a linked account, but the lender treats them as if they've been used to reduce your mortgage when calculating interest.

You can usually access your savings whenever you like. If your savings balance falls, your interest cost goes up again.

Why people like offsets

• You can keep an emergency fund and still reduce interest.
• Over time, you can pay the mortgage off faster or reduce your monthly payments.
• Useful for freelancers, company directors, and anyone with irregular income.

Things to consider

• The rate can be slightly higher than a similar non-offset deal.
• Works best if you hold consistent savings (or business cash) in the linked accounts.
• Can be fixed or variable, depending on the product.

A joint mortgage is where two or more people apply together, for example:

• A couple.
• Friends buying together.
• Family members.

The lender looks at all applicants' incomes and debts when working out affordability. This can increase how much you can borrow.

In the UK, joint owners usually hold the property as:

• Joint tenants - you both own the whole together; if one dies, the other automatically owns it all.
• Tenants in common - you each own a set share (for example 50/50 or 70/30).

A solicitor or conveyancer will explain the options and draw up the legal documents.

A guarantor mortgage brings in a third person, usually a parent or close relative, who agrees to step in if you can't meet the payments.

The idea is that:

• You take out the mortgage in your name.
• The guarantor's income, savings or property is used to support the risk.
• If you don't pay, the lender can chase the guarantor for the money.

Guarantor mortgages can help if:

• Your income is a bit too low for what you want to borrow.
• You have a small deposit but strong family support.
• You're early in your career with rising income expected.

Because the guarantor is taking on serious risk, lenders will usually insist they get independent legal advice before signing.

JBSP stands for Joint Borrower, Sole Proprietor.

• Multiple people (for example, you and a parent) are on the mortgage.
• Only you are on the property deeds.

This means:

• The extra borrower's income counts towards affordability.
• They're still responsible for the mortgage payments.
• They don't own a share of the property and aren't on the Land Registry title.

JBSP is popular where:

• Parents want to help a child buy, but don't want to be legal co-owners.
• Stamp duty would be higher if the parents were named as owners.
• There's a plan for the child to take over the full mortgage later.

Many lenders now offer "deposit boost" mortgages where family support replaces some or all of the cash deposit.

This can work in different ways:

• A family member places savings in a linked account as security for a few years.
• Savings or investments are used as extra collateral.
• Equity in a family member's own home is used to back your borrowing.

If you keep up with payments and the mortgage performs as expected, the family member gets their money back (with interest, in some cases).

These products can:

• Help buyers with small or no deposits get on the ladder.
• Avoid parents needing to gift money outright.

They do come with risk for the family supporter, so everyone should understand the terms clearly.

Shared ownership lets you:

• Buy a share of a property (often 25–75%).
• Pay rent on the remaining share to a housing association or similar provider.

You'll usually need a shared ownership mortgage to buy your share. Over time, you may be able to buy more of the property (called "staircasing"), often in chunks.

Shared ownership can make sense if:

• Your income or deposit isn't enough for 100% of a property locally.
• You're happy with the restrictions (for example, on improvements or sub-letting).

Key things to check:

• Service charges and ground rent (if any).
• The cost of buying extra shares later.
• How easy it is to sell your share in future.

Green mortgages offer better rates or incentives if the property has strong energy performance; usually an EPC rating of A or B, though some lenders accept a high C. They're most common on new-build homes, recently renovated properties, or homes with planned energy-efficiency improvements.

Why people choose green mortgages

• Potentially lower interest rates
• Cashback or incentive payments from some lenders
• Encourages investment in energy-efficient homes
• Can improve affordability where incentives offset monthly costs

What to watch out for

• EPC requirements vary by lender
• Older properties may not qualify without upgrades
• Improvements must often be evidenced or completed within a set timeframe
• Incentives may not always outweigh standard mortgage deals (it's worth comparing)

Buy-to-let mortgages are designed for rental properties, not homes you live in yourself.

They work differently from standard residential mortgages:

• Lenders mainly look at expected rental income, not just your personal income.
• Interest-only is very common, keeping monthly payments lower.
• Deposits are usually higher – often 20–25% or more.
• Fees and rates can be higher than for residential mortgages.

Most buy-to-let borrowers are existing or aspiring landlords. The tax, legal and regulatory rules differ from residential property, so it's worth getting professional advice.