Mortgage Guide UK
Types of Mortgages
Fixed-rate mortgages
Fixed-rate mortgages are the most common type of loan taken out by homebuyers and by homeowner remortgaging.
With a fixed-rate mortgage, you'll pay the same interest rate for a set number of years, meaning your monthly repayments will remain consistent regardless of what happens to the Bank of England Base Rate.
Borrowers most commonly take out two-year or five-year fixed-rate mortgages, although three, seven, 10, and even 15-year fixed terms are available.
At the end of your fixed period, you'll need to remortgage. If you don't, you'll be moved to your lender's standard variable rate (SVR), which is usually much more expensive.
Tracker mortgages
Tracker mortgages are variable rate deals that 'track' the Bank of England base rate plus a set percentage. For example, the base rate is currently 3.75 %. So if your tracker is 'base rate plus 1%', you'll pay a rate of 4.75%.
If the base rate goes up, so too will your monthly repayments. If it goes down, you should pay less each month - but this isn't always the case.
This is because some tracker mortgages come with a 'collar', which means the rate can only fall to a set level. This means if the base rate plummets, your payments might not follow suit.
As with fixed-rate mortgages, trackers have an introductory deal period (most commonly two years). After this, you'll be moved on to your lender's SVR if you don't remortgage.
Discount mortgages
Discount mortgages are variable-rate deals that charge your lender's SVR minus a fixed margin.
So if your lender's SVR is 5% and your deal charges the SVR minus 2%, you'll pay a rate of 3%.
If the lender puts up its SVR (for example, if the base rate goes up), your payments will go up accordingly. But if the SVR goes down, you'll pay less.
Discount mortgages usually come with introductory deal periods of two years.
Standard-variable-rate (SVR) mortgages
As we mentioned above, each lender has its own SVR that it can set at whatever level it wants.
This rate is usually much higher than the rate you'll be able to get on a fixed, tracker or discount mortgage.
SVRs don't change very often. They're not directly linked to the base rate, but are often affected by it.
For example, if the base rate goes up by 0.25 percentage points, lenders don't have to increase their SVR by the same margin, but many will.
Pros and cons of each mortgage type
In the table, we set out the pros and cons of different mortgage types.
| Mortgage type | How it works | Pros | Cons |
|---|---|---|---|
| Fixed-rate mortgage | Interest rate is fixed for a set period (commonly 2, 5, or 10 years), so monthly payments stay the same during that time. | Predictable payments make budgeting easy; protected from interest-rate rises; often cheaper than SVR during the fixed period. | You don’t benefit if rates fall; early repayment charges (ERCs) usually apply if you leave early; less flexible. |
| Tracker mortgage | Interest rate “tracks” the Bank of England base rate plus a fixed margin (e.g. base rate + 1%). | Transparent pricing; payments fall if the base rate falls; often lower ERCs or more flexibility than fixed deals. | Payments rise if the base rate increases; less certainty for budgeting; some have collars (minimum rates). |
| Standard Variable Rate (SVR) | Lender’s default rate, usually applied after an initial deal ends; rate can change at the lender’s discretion. | Usually no ERCs, so flexible for overpayments or remortgaging; useful short-term. | Typically higher than other deals; rate can change at any time; poor long-term value for most borrowers. |
| Discounted variable mortgage | A temporary discount off the lender’s SVR for a set period (e.g. 2% below SVR). | Cheaper than SVR initially; can benefit if SVR falls; often competitive short-term rates. | Still exposed to SVR increases; discounts end after the intro period; ERCs often apply. |
| Offset mortgage | Savings are linked to the mortgage and “offset” against the balance, reducing interest charged. | Can save significant interest; flexible access to savings; tax-efficient for higher-rate taxpayers. | Rates are usually higher than standard mortgages; benefits depend on having substantial savings; more complex. |
Which type of mortgage is best?
Whether you should choose a fixed or variable-rate mortgage will depend on whether:
- You think your income is likely to change
- You prefer to know exactly what you'll be paying each month
- You could manage if your monthly payments went up.
Interest-only and repayment mortgages
When you take out a mortgage, it will either be on an interest-only or repayment basis. With an interest-only mortgage, you only pay the interest each month, meaning you have to pay off the entire loan at the end of the mortgage term.
With a repayment mortgage, which is by far the more common type of deal, you'll pay off a bit of the loan as well as some interest as part of each monthly payment.
Joint mortgages
When you buy a property with someone else - for example, a partner, friend or family member - you'll take out a joint mortgage. Both parties will be named on the mortgage agreement and property deeds, and thus will be jointly responsible for making payments.
Mortgage lender
A mortgage lender will consider the total amount you can borrow and how affordable your monthly mortgage payments will be when deciding how much to lend.
The affordability assessment will take into account your income and your current outgoings, and will consider any changes that might affect whether you would be able to afford repayments (for example if interest rates change or if you were made redundant).
You may want to consider paying down debts on credit cards or loans before you apply for a mortgage, as the monthly repayments will be factored into the amount you can borrow.
More details about what information mortgage lenders might consider, as well as a checklist of the information you might need to prepare for a mortgage application.
Before you begin viewing properties you should get a mortgage decision in principle. This is a written statement from a lender giving an estimate of what you can borrow.
It gives you some indication of your budget and signals to sellers that you are serious about buying a property.
Getting a decision in principle from one lender does not mean you have to take out a mortgage with them.
However, as part of the decision in principle, the majority of lenders will carry out a credit search.
Some lenders will carry out a soft enquiry that will not affect your credit score.
Other lenders will undertake a hard enquiry that may affect your credit score.
You should find out what type of enquiry lenders use, as too many hard enquiries could negatively affect your credit score.
Mortgage calculator
Use the mortgage calculator to find out how much your monthly mortgage payments could be. This should help you work out how much you could afford to borrow.
Remember, though, the figures are only a guide to what you might pay - the exact cost will depend on the particular mortgage you choose.
Citizens Advice has partnered with MoneyHelper to provide you this tool. MoneyHelper is an independent service, set up by the government to help people make the most of their money, giving free, unbiased money advice to everyone across the UK.
Mortgage Broker or Adviser – able to advise which mortgage is best for you.
Useful links:
Get help from Support for Mortgage Interest (Easy Read)