Different Types Of Mortgages

Finding the right mortgage can feel daunting, with so many options available, particularly if you’re a first-time buyer. But don’t worry—you don’t need to be a financial whiz to make sense of it all. 

Our guide to all the different types of mortgages will help you make an informed choice so you can take the next steps toward buying a home more confidently.

Types of mortgages explained

A mortgage is a large loan used to buy a property or land. You borrow the money from a mortgage lender, such as a bank or building society, and agree to pay it back with interest over an agreed term—usually 25 years (shorter and longer terms are available if preferred). 

These basic elements, as described above, are the same regardless of the mortgage you choose. Before deciding which type of mortgage would suit you best, you’ll need to consider which repayment method you want to use. 

Mortgage Repayment Methods

When it comes to paying off your mortgage, you’ll usually have two options - capital repayment and interest-only.

With a capital repayment mortgage, your monthly payments cover the loan amount (the capital) and the interest. Over time, you’ll gradually chip away at the total amount you owe until you own your home outright by the end of the term. It’s the most straightforward and secure option since you’re guaranteed to pay off the entire debt.

On the other hand, an interest-only mortgage only requires you to pay the interest on the loan each month, meaning your monthly repayments will be much lower. You’ll still owe the full loan amount at the end of the term, so you’ll need a separate repayment plan to pay it off—whether through a savings scheme, investments, or property sale.

Capital Repayment vs Interest-Only

The capital repayment method is the traditional choice for most residential property purchases. It’s considered the safer option for the lender and the borrower because the capital reduces throughout the loan term. 

Interest-only mortgages can work well for certain buyers, particularly landlords and buy-to-let properties. However, the uncertainty of having enough money available to repay the amount borrowed in full at the end of the loan term can make them too risky for some.

Part and Part Mortgages

As the name suggests, a part and part mortgage offers the best of both worlds, allowing for part of the capital amount borrowed to gradually reduce throughout the term with each monthly payment. Any balance remaining at the end of the term must be paid in full using a separate repayment plan. 

Part and part mortgages are a healthy third option for anyone looking to keep mortgage repayments low throughout the term. However, provisions must still be made to pay off the remaining capital at the end of the mortgage term. 

Fixed-Rate Mortgages

Fixed-rate mortgages have a ‘fixed’ interest rate which stays the same for a set period, typically 2, 5, or even 10 years. Your monthly payments won’t change during the fixed term, no matter what happens to interest rates in the wider economy. 

This makes it a great choice for anyone concerned with budgeting and stability—you’ll always know exactly what you need to pay.

The flip side is that if interest rates drop, you won’t benefit. Plus, fixed-rate deals often come with early repayment charges, meaning you’ll have to pay a penalty fee if you want to switch to another mortgage deal before the fixed term ends. 

Variable-Rate Mortgages

Variable-rate mortgages are slightly more unpredictable than fixed-rate mortgages because the interest rate can go up or down. The rate is often linked to changes in the Bank of England’s base rate or the lender’s standard variable rate (SVR). 

There are several types of variable-rate mortgages, but the most common are tracker mortgages and discount mortgages.

• A tracker mortgage follows (or “tracks”) the Bank of England base rate, usually with a small percentage added on top. If the base rate increases, so do your monthly payments—and if it falls, your payments go down, too. Tracker mortgage deals are usually available for between two and five years. 

• A discount mortgage offers a reduction on the lender’s SVR for an initial period, typically two or three years. While these can start cheaper than fixed-rate deals, the downside is that your payments can still fluctuate if the lender decides to change its SVR.

Variable-rate mortgages work well for those who can handle a bit of financial flexibility, but they’re not ideal if you’d lose sleep over the possibility of rising payments.

Standard Variable Rate (SVR) Mortgages

You’ll typically move onto an SVR mortgage after your initial mortgage ends unless you arrange a new deal in time. Each lender sets its own SVR, which doesn’t follow the Bank of England base rate as closely as a tracker mortgage. 

This makes SVRs less predictable—they can change at the lender’s discretion, which often means higher interest rates compared to other mortgage types.

In most cases, it’s best to avoid staying on an SVR for long. If your current deal is ending, consider remortgaging to a better rate to keep your payments manageable.

Specialist Mortgages

Specialist mortgages are designed for people with unique financial situations or property needs. If you’ve struggled to get a mortgage through mainstream lenders, one of these options might work for you.

A bad credit mortgage is tailored to people with a less-than-perfect credit history. Whether you’ve missed payments, had a County Court Judgment (CCJ), or even been bankrupt, there are lenders who specialise in these situations. They’ll assess your application on a case-by-case basis, though you might face higher interest rates or deposit requirements.

Self-employed mortgages are another option, and using a specialist lender could give you a better chance of securing the borrowing you need. If you run your own business, proving your income is consistent enough to cover the mortgage repayments can be tricky—but not impossible. Lenders typically ask for two to three years of accounts, but some will consider just one year if the rest of your application is strong.

For those looking to invest, buy-to-let mortgages are the go-to option. These are usually set up as interest-only mortgages (although you can also use the capital and repayment method) designed for landlords buying properties to rent out. The lending criteria will primarily be based on the rental income, and you’ll typically need a higher deposit.

Government-Backed Mortgage Schemes

Government-backed schemes can make home ownership more accessible for first-time buyers and others struggling to save for a deposit and currently include:

• Shared ownership mortgages. The Shared Ownership scheme allows you to buy a portion of a property (usually between 25% and 75%) and pay rent on the rest. Over time, you can purchase more shares in the property, a process called staircasing, until you eventually own 100%. 

• Right to buy mortgages. For council or housing association tenants, the Right to Buy and Right to Acquire schemes offer significant discounts to help you purchase your home.

• Mortgage Guarantee Scheme. Designed to help people with low deposits get on to the property ladder by encouraging lenders to offer more 95% loan-to-value (LTV) mortgages. 

• First Homes Scheme. A government-backed initiative aimed at helping first-time buyers - particularly those on lower incomes and key workers - purchase homes by offering a significant discount. 

Niche Mortgages

Niche mortgages cater to unique properties or borrowing situations. An unencumbered mortgage, for instance, lets you release equity from a property you already own outright. This can provide funds for home renovations, debt consolidation, or even buying another property.

Non-standard construction mortgages are ideal for unconventional homes, like timber-framed or thatched-roof properties. These homes may not meet the usual lending criteria, but specialist lenders with specific knowledge and understanding of such properties can help you secure the mortgage you need.

If you need a little help from a family member to get on the property ladder, either a guarantor mortgage or joint borrower sole proprietor mortgage are options available if you’re struggling to get a home loan as a sole applicant.