UK Mortgage Types
Choosing the right mortgage type can save you thousands of pounds. UK mortgages differ from other countries — we have unique products like tracker mortgages, offset mortgages, and the dreaded Standard Variable Rate (SVR). Understanding each type helps you pick the best deal and avoid overpaying.
Fixed Rate Mortgage
- How it works — Your interest rate is fixed for a set period (typically 2, 3, 5, or 10 years). Your monthly payments stay exactly the same regardless of what happens to the Bank of England base rate
- Current rates — 2-year fixed: around 4.5-5%. 5-year fixed: around 4.2-4.8%. 10-year fixed: around 4.5-5.2%
- Best for — People who want payment certainty, first-time buyers on tight budgets, when rates are expected to rise
- Downside — You will not benefit if rates fall. Early repayment charges (ERCs) apply during the fixed period, typically 1-5% of the outstanding balance
- Most popular choice — Around 90% of UK mortgage borrowers choose fixed rates. 5-year fixed is currently the most popular term
Tracker Mortgage
- How it works — Your rate tracks the Bank of England base rate plus a set margin. If the base rate is 4.5% and your tracker is base rate + 0.75%, you pay 5.25%. When the base rate changes, your payment changes
- Best for — When rates are expected to fall. You benefit immediately from any base rate cuts
- Risk — If the base rate rises, your payments increase. You need budget flexibility to handle potential payment increases
- Lifetime tracker — Tracks for the entire mortgage term. No ERCs, so you can overpay or switch at any time. Good flexibility but exposure to rate changes
Other Mortgage Types
- Discount mortgage — A discount off the lender SVR for a set period. If SVR is 7% and your discount is 2%, you pay 5%. Unlike trackers, the SVR can change at the lender discretion, not just when the base rate moves
- Standard Variable Rate (SVR) — The lender default rate. You move to SVR when your fixed or tracker deal ends. SVR is typically 6-8% — much higher than deal rates. Never stay on SVR. Always remortgage before your deal ends
- Offset mortgage — Your savings are linked to your mortgage. If you have a £200,000 mortgage and £30,000 in savings, you only pay interest on £170,000. Your savings do not earn interest but the tax-free mortgage interest saving is often worth more. Excellent for higher rate taxpayers
- Interest-only mortgage — You only pay interest each month, not capital. The loan amount never reduces. You need a repayment plan (investments, sale of property) to pay off the capital at the end. Much stricter criteria now than pre-2008
How to Choose
- Want certainty? → 5-year fixed. Longest peace of mind with competitive rates
- Think rates will fall? → 2-year fixed or tracker. Move to a better deal sooner
- Have significant savings? → Offset mortgage. Tax-efficient interest saving
- Want flexibility? → Lifetime tracker with no ERCs. Overpay or switch freely
- Near the end of a deal? → Remortgage immediately. Never sit on SVR
Critical rule: Set a reminder 3 months before your deal ends. Contact a mortgage broker and start the remortgage process. Staying on SVR for even 6 months could cost you £2,000-£4,000 in unnecessary interest.