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Types of Mortgages available to Borrowers

6th Dec 2023

There are several types of mortgages available to borrowers in the UK. These mortgages can vary based on interest rates, repayment terms, and eligibility criteria. Here are some of the most common types of UK mortgages:

Fixed Rate Mortgage: With a fixed-rate mortgage, the interest rate remains constant for a predetermined period, typically 2, 3, 5, or 10 years. Borrowers have the security of knowing their monthly mortgage payments won’t change during the fixed term, making budgeting easier.

Tracker Mortgage: Tracker mortgages have an interest rate that follows the Bank of England’s base rate or another specified benchmark. The interest rate on a tracker mortgage will move up and down with the chosen benchmark, affecting monthly payments.

Standard Variable Rate (SVR) Mortgage: SVR mortgages are set by individual lenders and can change at any time. Borrowers are typically moved onto the SVR after their initial fixed or tracker term ends.

Discount Mortgage: A discount mortgage offers a discount on the lender’s SVR for a specified period. The interest rate and monthly payments can change when the discount period ends.

Offset Mortgage: An offset mortgage links a borrower’s mortgage with their savings or current account. The balance in the savings or current account is offset against the mortgage balance, reducing the interest charged.

Interest-Only Mortgage: With an interest-only mortgage, borrowers pay only the interest on the loan each month. The loan (amount borrowed) is then repaid at the end of the mortgage term, this could be through a separate investment vehicle.

Repayment Mortgage: A repayment mortgage involves making monthly payments that cover both the interest and a portion of the mortgage (amount borrowed). Over time, the outstanding mortgage balance decreases until it is fully repaid by the end of the term.

Buy-to-Let Mortgage: Buy-to-let mortgages are designed for property investors who want to buy residential properties to rent out. The rental income is expected to cover the mortgage payments.

Help to Buy Mortgage: The Help to Buy scheme is a government initiative that offers support to first-time buyers. It includes an equity loan that can be used in conjunction with a mortgage to purchase a new-build property.

Self-Build Mortgage: Self-build mortgages are tailored for individuals building their own homes. Funds are released in stages as the construction progresses.

Adverse Credit Mortgage: Adverse credit mortgages, also known as subprime mortgages, are for borrowers with a less-than-perfect credit history. Interest rates on these mortgages are often higher to compensate for the risk.

Shared Ownership Mortgage: Shared ownership allows buyers to purchase a portion of a property and pay rent on the remaining portion. These mortgages can make homeownership more affordable for lower-income individuals.

It’s important for borrowers to carefully consider their financial situation and long-term goals when choosing a mortgage type. Mortgage terms, conditions, and interest rates can vary between lenders, so it’s advisable to seek advice from a mortgage broker or financial adviser before making a decision.

At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.

All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.

*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.