Mortgage options: types of mortgage available for home buyers and landlords

Mortgage options overview

Choosing a mortgage involves more than picking a rate. Lenders describe products in different ways, terms can vary, and the way a mortgage behaves over time can affect your monthly payments, your long-term cost, and how manageable the mortgage feels if interest rates change.

This guide summarises the main mortgage options commonly available in the UK, including the difference between repayment and interest-only mortgages, and the key features of popular product types such as fixed, variable, tracker, discounted, and capped mortgages.

How mortgage products are usually described

Most mortgage products can be understood by looking at two things:

• How the interest rate is set (for example, fixed for a period, or linked to a benchmark such as base rate)
• How the mortgage is repaid (for example, repayment or interest-only)

Because the rate-setting method affects payment stability, it’s helpful to match the product type to your expectations for income, budgeting, and how long you plan to keep the mortgage.

Repayment vs interest-only mortgages

Repayment mortgage

With a repayment mortgage, your monthly payment is made up of both:

• a portion that reduces the amount you borrowed (the capital), and
• a portion that covers the interest.

Over the term, the mortgage is designed to be repaid in full if payments are made as agreed.

Interest-only mortgage

With an interest-only mortgage, your monthly payment covers only the interest. The original loan balance remains outstanding and is typically due at the end of the term.

Many borrowers plan for the repayment of the capital using a separate strategy (such as savings or an investment plan). The suitability of an interest-only approach depends on whether there is a credible plan to repay the capital when the term ends.

Rate types: fixed, variable and linked mortgages

Variable rate mortgage

A variable rate mortgage can change over time. The lender’s variable rate may move as economic conditions change and as the lender adjusts its pricing.

What this means for you: monthly payments can rise or fall, so budgeting may need to allow for payment changes.

Fixed rate mortgage

A fixed-rate mortgage keeps the interest rate the same for a set period, which can vary by lender and product.

What this means for you: repayments are generally more predictable during the fixed period, which can help with planning.

Discounted rate mortgage

A discounted-rate mortgage is offered at a reduced rate compared with the lender’s standard variable rate for a set period.

What this means for you: because the discount is usually time-limited and linked to the lender’s standard variable rate, payments may change when the discount ends or if the underlying variable rate changes.

Tracker mortgage

A tracker mortgage is linked to a benchmark such as the Bank of England base rate. The mortgage rate moves in line with that benchmark, subject to the product’s specific terms.

What this means for you: payments can fluctuate as the benchmark changes.

Capped rate mortgage

A capped-rate mortgage places a ceiling on how high the interest rate can go, compared with the lender’s standard variable rate.

What this means for you: it can offer some protection against rate rises, while still allowing the rate to move within the cap rules.

Buy-to-let mortgages (landlords and property investors)

A buy-to-let mortgage is designed for purchasing a property with the intention of letting it out.

In many cases, the way affordability is assessed for buy-to-let differs from residential borrowing. Lenders may focus on factors such as the expected rental income and the available deposit, rather than relying solely on the borrower’s regular income.

It’s also important to understand that buy-to-let products can have different regulatory treatment depending on the structure of the arrangement.

Choosing the right mortgage option: what to think about

When comparing mortgage options, consider:

• Payment stability: Do you want predictable payments for a period (fixed) or are you comfortable with changes (variable/linked)?
• Time horizon: How long do you expect to keep the mortgage before moving, remortgaging, or changing your circumstances?
• Repayment strategy: If considering interest-only, is there a clear and realistic plan for repaying the capital at the end of the term?
• Rate structure: Linked products (tracker/variable) can move with benchmarks, while discounted and capped products have specific limits and timeframes.

Important note

Your home may be repossessed if you do not keep up repayments on your mortgage.