Types of Mortgages in the UK Explained
Choosing the right type of mortgage is one of the most important decisions in the home-buying process. The UK mortgage market offers a range of products designed for different circumstances, risk appetites, and financial objectives. This guide explains every major mortgage type available in the UK, with honest pros and cons to help you make an informed choice. Use our mortgage calculator to model the cost of different products based on your numbers.
Quick Comparison Table
| Mortgage Type | Rate Behaviour | Best For | Typical Term | Risk Level |
|---|---|---|---|---|
| Fixed Rate | Stays the same for fixed period | Budget certainty, first-time buyers | 2, 3, 5, or 10 years | Low |
| Tracker | Follows Bank of England base rate | Those expecting rate cuts | 2, 5 years or lifetime | Medium-High |
| Discount Variable | Set discount below lender's SVR | Flexible borrowers, short-term | 2-3 years | Medium-High |
| Standard Variable (SVR) | Set by lender, can change anytime | Nobody — avoid if possible | Ongoing | High |
| Offset | Fixed or variable, savings offset balance | Savers, higher-rate taxpayers | 2-5 years | Low-Medium |
| Interest-Only | Any rate type, only interest paid | Investors, those with repayment plan | Full term | High |
| Repayment | Any rate type, principal + interest | Most homeowners | Full term | Low |
Fixed-Rate Mortgages
A fixed-rate mortgage locks your interest rate for a set period, most commonly two, three, five, or ten years. During this period, your monthly payment remains exactly the same regardless of what happens to the Bank of England base rate or the wider economy. When the fixed period ends, the mortgage reverts to the lender's Standard Variable Rate unless you remortgage to a new deal. Fixed rates are the dominant product in the UK market, accounting for approximately 95% of new mortgage lending.
In 2026, two-year fixed rates typically range from 4.2% to 5.0%, while five-year fixes range from 3.9% to 4.8%. The choice between a two-year and five-year fix involves a trade-off: two-year fixes offer flexibility to remortgage sooner if rates fall, but require more frequent remortgaging with associated costs and effort. Five-year fixes provide longer stability and often come at lower rates, but lock you in for longer with potentially higher early repayment charges if you need to exit early.
Pros
- Payment certainty for budgeting
- Protection against rate rises
- Wide availability and competitive pricing
- Ideal for first-time buyers and families
Cons
- Miss out if rates fall significantly
- Early repayment charges during fixed period
- Arrangement fees can be high
- Must remortgage when deal ends
Tracker Mortgages
A tracker mortgage has an interest rate that directly follows the Bank of England base rate plus a set margin. For example, a tracker at base rate + 1.0% would currently give you a rate of approximately 4.5-5.0%. If the base rate changes, your mortgage rate and monthly payment change by the same amount. Trackers are fully transparent — unlike variable rates, the lender cannot arbitrarily change the margin. Some trackers have a floor rate below which the rate cannot fall, even if the base rate drops further.
Tracker mortgages come in various terms. A two-year tracker reverts to the SVR after two years (similar to fixed-rate products). A lifetime tracker stays linked to the base rate for the entire mortgage term and often comes with no early repayment charges, offering maximum flexibility. Lifetime trackers are rare and sought-after products that provide the ultimate combination of transparency and flexibility, though they carry the risk of unlimited payment increases.
Pros
- Transparent rate linked to base rate
- Benefit immediately if rates fall
- Lifetime trackers often have no ERCs
- Fair and predictable rate mechanism
Cons
- Payments increase when base rate rises
- Less payment certainty than fixed rates
- May have a floor rate limiting downside benefit
- Budget planning more difficult
Discount Variable Rate Mortgages
A discount variable rate mortgage offers a set discount below the lender's Standard Variable Rate for a specified period, typically two to three years. For example, if the lender's SVR is 7.5% and the discount is 2.5%, you pay 5.0%. The key difference from a tracker is that the discount is applied to the lender's SVR, not the Bank of England base rate. Since lenders can change their SVR at any time and by any amount, discount mortgages are less transparent than trackers.
A lender could raise its SVR by more than any base rate increase, or raise it even when the base rate stays the same. In practice, SVR changes generally follow base rate movements, but the lender has discretion. This makes discount mortgages harder to predict than trackers. They can offer attractive initial rates, but the lack of transparency means borrowers should understand the risk of SVR changes that may not align with market expectations.
Pros
- Can be cheaper than fixed rates initially
- Benefit from any SVR reductions
- Sometimes have lower arrangement fees
- May have more flexible overpayment terms
Cons
- SVR changes are at lender's discretion
- Less transparent than tracker mortgages
- Payment uncertainty makes budgeting harder
- SVR can rise independently of base rate
Standard Variable Rate (SVR)
The Standard Variable Rate is the default rate that all mortgage borrowers move onto when their initial deal (fixed, tracker, or discount) expires. It is set by the lender and can be changed at any time, in any direction, by any amount, without necessarily following the Bank of England base rate. SVRs in 2026 typically range from 7.0% to 8.5% — significantly higher than competitive fixed or tracker rates.
There is almost never a good reason to remain on the SVR. Approximately 800,000 UK homeowners are currently paying it, often through inertia or unawareness that better options exist. If you are on your lender's SVR, you should strongly consider remortgaging to a competitive deal as soon as possible. Our mortgage calculator can show you the savings, and our remortgage guide explains the process step by step.
Pros
- No early repayment charges
- Can overpay or leave at any time
- No arrangement fees
Cons
- Significantly higher rate than alternatives
- Rate can change at lender's discretion
- Costs hundreds more per month than competitive deals
- No good reason to stay on SVR long-term
Offset Mortgages
An offset mortgage links your savings account (and sometimes current account) to your mortgage. Rather than earning interest on your savings, the savings balance is offset against your mortgage balance, and you only pay interest on the difference. If you have a £250,000 mortgage and £40,000 in linked savings, you pay interest on just £210,000. Your savings remain accessible — you can withdraw them at any time, though this increases the balance on which mortgage interest is charged.
The effective return on your savings in an offset arrangement equals your mortgage interest rate, and this return is completely tax-free since you are not technically earning interest but rather not paying it. For a higher-rate taxpayer at 40%, an offset mortgage at 4.5% provides the equivalent of a savings rate of 7.5% gross. This makes offset mortgages particularly attractive for those with substantial savings and higher tax rates. Family offset mortgages also exist where a parent's savings are linked to an adult child's mortgage.
Pros
- Tax-free effective return on savings
- Savings remain accessible
- Reduces interest without formal overpayment
- Excellent for higher-rate taxpayers
Cons
- Rates slightly higher than standard products
- Fewer lenders offer them — less competition
- Need substantial savings to see meaningful benefit
- Savings earn zero interest directly
Interest-Only Mortgages
With an interest-only mortgage, your monthly payments cover only the interest charges — you do not repay any of the original loan amount. This means significantly lower monthly payments compared to a repayment mortgage. However, at the end of the term, you still owe the full original loan amount and must have a credible repayment strategy in place. Residential interest-only mortgages have become rare following regulatory tightening, and lenders now require evidence of a viable repayment vehicle such as investments, endowments, pension lump sums, or the planned sale of the property.
Interest-only remains more common in the buy-to-let sector, where the strategy relies on property value appreciation and eventual sale to repay the mortgage. For residential borrowers, some lenders offer part-and-part mortgages where a portion of the loan is on interest-only and the remainder on repayment, providing a balance between lower payments and capital reduction.
Pros
- Much lower monthly payments
- Frees up cash for other investments
- Standard for buy-to-let mortgages
- Useful for short-term situations
Cons
- Loan balance never reduces
- Must have repayment strategy
- Hard to qualify for residentially
- Risk of negative equity if values fall
Repayment Mortgages
A repayment mortgage (also called a capital and interest mortgage) is the standard structure where each monthly payment covers both the interest charged and a portion of the original loan amount. Over the full mortgage term, the loan is gradually paid off until the balance reaches zero on the final payment date. This is the most common and generally recommended mortgage structure for residential borrowers, as it guarantees the debt is cleared by the end of the term provided all payments are made.
In the early years, a larger proportion of each payment goes toward interest, with the principal repayment portion increasing over time as the balance reduces. This is why the amortization tables shown in our mortgage calculator demonstrate slow initial balance reduction that accelerates in later years. Repayment mortgages provide peace of mind that your home will be mortgage-free by the end of the term, which is particularly important for retirement planning.
Pros
- Guaranteed to be mortgage-free at term end
- Builds equity with every payment
- Widely available from all lenders
- Best option for most homeowners
Cons
- Higher monthly payments than interest-only
- Less cash available for other purposes
- Equity builds slowly in early years
How to Choose the Right Mortgage Type
The best mortgage type depends on your individual circumstances. Consider the following factors when making your decision:
- Risk tolerance: If payment certainty is important to you, a fixed rate is the safest choice. If you are comfortable with some fluctuation and believe rates may fall, a tracker could save you money.
- Financial flexibility: If you need to be able to overpay or exit without penalties, consider a lifetime tracker or waiting until your fixed period ends before making changes.
- Savings position: If you have substantial savings, an offset mortgage could provide excellent value, particularly if you are a higher-rate taxpayer.
- Time horizon: How long do you plan to stay in the property? A five-year fix makes less sense if you plan to move within two years, as ERCs would apply.
- Market outlook: While nobody can predict rates with certainty, understanding the current direction of travel can inform your choice between fixed and variable products.
A mortgage broker can provide personalised advice based on your specific financial situation and access deals from across the market, including products not available directly from lenders. Most brokers do not charge a fee for their service, instead earning commission from the lender, making their expertise essentially free to the borrower.
Frequently Asked Questions
What is the most popular type of mortgage in the UK?
Fixed-rate mortgages are by far the most popular in the UK, accounting for approximately 95% of new mortgage lending. The five-year fixed rate has become the most common choice, overtaking two-year fixes in recent years as borrowers seek longer-term payment certainty in a volatile rate environment.
Is a fixed or variable rate mortgage better?
Neither is universally better — it depends on your circumstances and risk appetite. Fixed rates provide payment certainty and protection against rate rises, ideal for those on tight budgets or who dislike uncertainty. Variable rates can be cheaper when rates are falling and often offer more flexibility with lower or no early repayment charges. In 2026, with rates potentially stabilising or easing, both options have their merits.
What happens when my fixed rate mortgage ends?
When your fixed rate period ends, your mortgage automatically moves to the lender's Standard Variable Rate (SVR), which is typically 1.5-3% higher than competitive deals. You should remortgage to a new product before your fix expires to avoid paying the elevated SVR. Start the process 6 months early — read our remortgage guide for detailed steps.
Can I switch from interest-only to repayment?
Yes, most lenders allow you to switch from interest-only to a repayment mortgage. This can often be done with your existing lender as a simple product change, without a full remortgage. Your monthly payments will increase since you will now be repaying the loan principal as well as interest, and the lender will need to check you can afford the new payment amount.
What is an offset mortgage and is it worth it?
An offset mortgage links your savings to your mortgage so you only pay interest on the difference. If you have a £200,000 mortgage and £30,000 in linked savings, you pay interest on £170,000. The effective return equals your mortgage rate, tax-free. Offset mortgages are worth considering if you have substantial savings and are a higher-rate taxpayer, though rates are slightly higher than standard products.