What types of mortgages are available in the UK?

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Finding the best mortgage for you and your situation can be tricky, especially as there are many different products to choose from.

Individual providers such as banks and building societies offer their own unique mortgage products but there are some common types that are standard across most lenders.

There’s a lot to consider when buying a house and, along with going through the conveyancing process and putting together funds for a deposit and fees, your mortgage is one of the most important factors.

Fixed rate

These are popular types of mortgages where you pay the same amount in interest each month, regardless of the rate set by the Bank of England. You can usually fix your payments for a number of years with one, two, five and ten-year fixed rate mortgages being the most common.

The main benefit of fixing your rate is that, should the base rate increase, your payment will still remain the same. However, you can also stand to lose out if the rate drops and you’re still paying the higher interest.

Many homeowners choose this product as, on balance, it’s less risky. With a fixed rate, you’ll know exactly what you’ll be paying for the next few months or years.

Tracker

Unlike fixed rate mortgages, these products track the rate set by the Bank of England. You’ll usually have to pay slightly above the base rate and there’s often a limit on the minimum amount of interest you’ll pay.

These types of mortgages can benefit you if the base interest rate drops but they can cause a rise in payments should it increase.

Interest only

Like the name suggests, this is where you only pay the interest on your mortgage, meaning you don’t actually pay back the loan itself until the end of your term.

This option might be more affordable in the short term due to lower monthly payments, but you’ll likely end up owing more overall than with a repayment mortgage.

Buy-to-let

These mortgages are geared towards prospective landlords who want to rent out a home that they’re buying. Because these are seen as a greater risk by lenders, the fees and interest rates are generally higher. You might also need a bigger initial deposit.

95% mortgage

These products allow you to borrow 95% of the house value and put down just a 5% deposit. Choosing one of these mortgages might mean you can get on the property ladder quicker as you won’t need to save as much to put down. But they can be expensive, in terms of repayments and interest rates so it’s worth considering if you can contribute any more to your initial deposit.

With any mortgage, you’ll need to think about what you want to do when your term comes to an end as you’ll typically be placed on the standard variable rate until you choose another product.

It’s also worth shopping around to see if there are better deals elsewhere but always make sure that your provider is registered with the Financial Conduct Authority before taking out any new mortgage.

 

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