Choosing the right mortgage can save you thousands of pounds over the life of your loan. This guide explains every UK mortgage type — how they work, who they suit, and what to watch out for.
UK Mortgage Types at a Glance
| Type | How it Works | Best For | Risk Level |
|---|---|---|---|
| Fixed rate | Interest locked for set period | Payment certainty | Low |
| Tracker | Follows Bank of England Base Rate | When rates may fall | Medium |
| SVR | Lender’s default variable rate | Flexibility (but expensive) | Medium |
| Discount variable | Discount on SVR for set period | Short-term savings | Medium |
| Offset | Savings reduce mortgage interest | High savings, tax efficiency | Low |
| Repayment | Pay capital + interest monthly | Building equity | Low |
| Interest-only | Pay interest, repay capital later | Buy-to-let, wealthy borrowers | High |
Fixed-Rate Mortgages
Your interest rate stays the same for a set period — typically 2, 5, or 10 years.
How Fixed Rates Work
- Monthly payment stays identical throughout the fixed term
- Rate is agreed when you apply and locked in at completion
- When the fix ends, you move to SVR (or remortgage to a new deal)
Fixed-Rate Terms Compared
| Term | Pros | Cons |
|---|---|---|
| 2-year fix | Lower rate, flexibility to remortgage sooner | Frequent remortgaging costs, rate uncertainty |
| 5-year fix | Stability, fewer fees over time | Higher rate than 2-year, large ERCs if you move |
| 10-year fix | Long-term certainty, protection from rate rises | Highest rates, significant ERCs |
Early Repayment Charges (ERCs)
Fixed-rate mortgages usually carry ERCs — fees for leaving the deal early:
- 2-year fix: Typically 2-3% of the loan
- 5-year fix: Often 5% in year 1, reducing by 1% annually
- 10-year fix: Can be 8-10% in early years
Check ERCs before choosing — they matter if you might move house.
Who Should Choose Fixed Rate?
- First-time buyers wanting payment certainty
- Families with tight budgets
- Anyone who’d struggle if rates rose
- Buyers during volatile rate environments
Tracker Mortgages
Your rate follows the Bank of England Base Rate, moving up or down with it.
How Trackers Work
- Rate is set as Base Rate + a margin (e.g., Base Rate + 1.0%)
- If Base Rate is 4.5% and your margin is 1.0%, you pay 5.5%
- Rate changes automatically when Bank of England adjusts Base Rate
- Tracker periods: Lifetime, 2-year, 5-year (or until a certain date)
Base Rate Examples
| Base Rate | Your Margin | Your Rate | Monthly Cost (£250k, 25yr) |
|---|---|---|---|
| 4.5% | +1.0% | 5.5% | £1,512 |
| 5.0% | +1.0% | 6.0% | £1,593 |
| 4.0% | +1.0% | 5.0% | £1,434 |
| 3.5% | +1.0% | 4.5% | £1,358 |
Lifetime Trackers vs Fixed-Period Trackers
Lifetime tracker:
- Tracks Base Rate for the entire mortgage term
- Often portable if you move house
- Lower ERCs (or none)
Term trackers (2-5 years):
- Tracks for a set period, then reverts to SVR
- ERCs apply during tracker period
- Similar to fixed deals but with rate variability
Who Should Choose Tracker?
- Borrowers comfortable with payment fluctuation
- Those who believe rates will fall
- People wanting flexibility (lower ERCs)
- Financially resilient households with payment buffers
Standard Variable Rate (SVR)
Your lender’s default rate — usually higher than other options.
How SVR Works
- Each lender sets their own SVR (typically 6-8% in 2026)
- Can change at any time (not tied to Base Rate)
- You move to SVR when a fixed/tracker deal ends
- No ERCs — you can leave whenever
Current SVR Examples (Indicative)
| Lender | SVR |
|---|---|
| Nationwide | 6.99% |
| Barclays | 7.25% |
| Halifax | 7.49% |
| Santander | 7.00% |
| NatWest | 7.25% |
Check current rates with your lender — these are indicative.
Should You Stay on SVR?
Almost never for long. SVR is rarely competitive. However, it may suit:
- Borrowers about to pay off their mortgage (small remaining balance)
- Those expecting to move house imminently
- People wanting maximum flexibility with no ERCs
Most borrowers should remortgage to escape SVR.
Discount Variable Rate Mortgages
A discount on the lender’s SVR for a set period.
How Discount Rates Work
- Rate is SVR minus a fixed discount (e.g., SVR - 1.5%)
- If SVR is 7.0% and discount is 1.5%, you pay 5.5%
- When SVR changes, your rate changes
- Discount applies for 2-5 years, then you pay full SVR
Discount vs Tracker
| Discount | Tracker | |
|---|---|---|
| Follows | Lender’s SVR | Bank of England Base Rate |
| Transparency | SVR can change unpredictably | Base Rate changes are public |
| Price moves | May not follow Base Rate | Always follows Base Rate |
Trackers are more transparent. Lenders can adjust SVR independently of Base Rate.
Who Should Choose Discount?
- Those wanting variable rates if trackers unavailable
- Borrowers comfortable with SVR-linked uncertainty
- Generally less common than trackers or fixes
Offset Mortgages
Your savings are linked to your mortgage, reducing the balance you pay interest on.
How Offset Works
- You have a mortgage (£200,000) and savings account (£30,000)
- Instead of earning interest on savings, savings offset mortgage
- You pay interest on £170,000 (mortgage minus savings)
- Savings remain accessible — you can withdraw anytime
Example Savings
| Mortgage | Savings | Interest Charged On | Rate | Monthly Payment | Interest Saved |
|---|---|---|---|---|---|
| £250,000 | £0 | £250,000 | 5.0% | £1,434 | £0 |
| £250,000 | £25,000 | £225,000 | 5.0% | £1,290 | £144/month |
| £250,000 | £50,000 | £200,000 | 5.0% | £1,149 | £285/month |
Offset vs Higher Savings Interest
Offset “earns” your mortgage rate, tax-free. Compare to savings accounts:
| Offset Effect | Cash ISA | Taxable Savings | |
|---|---|---|---|
| Effective rate | 5.0% (mortgage rate) | 4-5% | 4-5% (less tax) |
| Taxable? | No (not interest, it’s interest not paid) | No | Yes |
| Higher-rate taxpayer benefit | Full 5.0% | Full rate | Rate minus 40% tax |
For higher-rate taxpayers, offset is often better than taxable savings accounts.
Who Should Choose Offset?
- Savers with £20,000+ in accessible cash
- Higher-rate taxpayers (40% or 45%)
- Self-employed with fluctuating cash reserves
- Those wanting flexibility to access savings
Trade-off: Offset rates are typically 0.1-0.3% higher than standard mortgages.
Repayment vs Interest-Only
Repayment Mortgages
Most common type — you pay capital and interest each month.
- Every payment reduces what you owe
- At the end of the term, you own the property outright
- Monthly payments higher than interest-only
- Builds equity from day one
Interest-Only Mortgages
You only pay interest each month — the capital balance never reduces.
| Repayment | Interest-Only | |
|---|---|---|
| Monthly payment (£250k, 5%, 25yr) | £1,434 | £1,042 |
| Balance after 25 years | £0 | £250,000 |
| Repayment strategy needed? | No | Yes (investment, pension, sale) |
With interest-only, you must repay the full £250,000 at the end — usually through:
- Selling the property
- Cashing investments/pension
- Paying from elsewhere
Interest-Only Eligibility (2026)
Lenders require:
- Large deposit: 25-50% (some require 50%+)
- Proven repayment strategy: Investments, pension, other property
- High income: Often £75,000+ household income
- Low LTV: Maximum 75% (more commonly 50-60%)
First-time buyers rarely get interest-only.
Part-and-Part Mortgages
Some lenders offer hybrid mortgages:
- Part repayment (e.g., 75% of the mortgage)
- Part interest-only (25%)
This balances lower payments with some capital repayment.
Which Mortgage Is Right for You?
Decision Guide
Choose fixed rate if…
- You want predictable monthly payments
- Your budget is tight
- You’re risk-averse
- You’re a first-time buyer
Choose tracker if…
- You believe rates will fall
- You can absorb payment increases
- You want lower ERCs
- You’re comfortable with variability
Choose offset if…
- You have substantial savings (£20,000+)
- You’re a higher-rate taxpayer
- You want savings accessible while reducing interest
- You’re self-employed with cash reserves
Avoid SVR — remortgage instead.
Next Steps
- Check your current deal — When does it end? What’s the ERC?
- Start looking early — 3-6 months before your deal ends
- Compare rates — Use brokers or comparison sites
- Consider total cost — Rate + fees over the deal period
Related Guides
- Remortgage Guide UK — How and when to remortgage
- How Much Can I Borrow? — Affordability rules
- Complete Mortgage Guide — Everything about mortgages
- First-Time Buyer Mortgage Guide — Getting your first mortgage
- Mortgage Deposit Guide — How much to save
Mortgage rates change frequently. The figures in this guide are illustrative — always check current rates with lenders or brokers before applying.