Understanding different types of mortgages 

For most people, buying a new home is the biggest financial commitment they’ll ever make. That’s why it’s vital to understand the various mortgage types on the market. 

As property prices have fluctuated and mortgage rates increased in 2023, we have analysed Google keyword data to reveal which types of mortgages are the most searched for in the UK, covering the pros and cons of each.  

Additionally, we surveyed 500 UK homeowners to assess mortgage understanding, revealing which types are least familiar to us. 

Fixed-rate mortgage 

Average monthly searches – 14,800 

With a fixed-rate mortgage, your repayments will be the same for a set period – typically two to five or sometimes even ten years. This gives you the certainty of knowing what your repayments will be regardless of market interest rates. 

Fixed-rate mortgages are among the most popular mortgage types, accumulating the most average UK monthly searches. It’s perhaps surprising that 32% of homeowners are unfamiliar with this mortgage.  

Pros 

• Peace of mind that your monthly payments will stay the same 
• Ideal for those on a tight budget looking for stability 

Cons 

• If interest rates drop, you won’t benefit from lower repayments 
• Choosing to switch from certain long-term fixed-rate mortgages early can lead to significant exit penalties  

When a fixed-rate mortgage ends, you will be switched onto your lender’s standard variable rate (SVR), or you can remortgage. When you remortgage you will usually be offered a new rate from your existing called a Product Transfer. If you want to switch before the deal ends, you’ll usually pay an early repayment charge. 

First-time buyer mortgages

Average monthly searches – 12,100 

These are loans designed for individuals purchasing their first home. It is often tailored to accommodate the unique financial circumstances and needs of first-time buyers. 

Various mortgage products are specifically targeted at first-time buyers, including low-deposit mortgages that offer first-time buyers the potential to secure a property with a lower down payment, and fixed-rate mortgages that offer a stable interest rate for a predetermined period. 

As a first-time buyer, this is likely the first time you will have encountered conversations about mortgages best suited to you. Yet, 40% are unfamiliar with what these mortgages entail.

Pros 

• Typically offers lower deposit requirements compared to other mortgage types 
• Exposure to government schemes and financial help, including lifetime  Individual Savings Accounts (ISAs) and shared ownership 

Cons 

• First-time buyers may be offered higher interest rates compared to those with a larger down payment or a more established credit history 
• Lenders may impose strict eligibility criteria for first-time buyers, making it challenging for those with limited credit history or lower income 

Offset mortgage 

Average monthly searches – 9,900 

With offset mortgages, you keep your mortgage debt and savings with the same bank or building society. Your savings are then used to reduce – or ‘offset’ – the amount of mortgage interest you’re charged. 

Offset mortgages can potentially help reduce the interest you pay. However, 89% of homeowners are unaware of this mortgage type. 

Pros 

• It can help reduce the amount of interest you pay on a mortgage 
• It gives you peace of mind to know your savings are working to reduce your mortgage interest 

Cons 

• Offset mortgages can be more complex to understand and manage  
• Payments on the mortgage may increase if the borrower makes a withdrawal from their offset savings 

Tracker mortgage 

Average monthly searches – 8,100 

A tracker mortgage provides an interest rate that may fluctuate, potentially decreasing or increasing, typically staying below the rate of a standard variable rate (SVR) mortgage. Two in three homeowners are unaware of this mortgage loan. 

Pros 

• If the base rate falls, your mortgage payment costs will fall 
• Certain tracker mortgages have a cap, meaning the interest rate won’t go beyond a set limit, even if the base rate rises 

Cons 

• If the base rate increases, your mortgage payments will increase 
• You won’t know how much your repayments will be throughout the entire deal period 
• You might have to pay an early repayment charge if you want to switch before the deal ends 

Lifetime mortgage 

Average monthly searches – 1,300 

This is a product designed for mature homeowners that allows them to convert a portion of their home equity into tax-free cash, without the need to sell their home, give up ownership, or make monthly mortgage payments.  

There are almost seven million homes in England headed by someone aged 65 or over. However, 71% of UK homeowners are unaware of lifetime mortgages  

Pros  

• A lifetime mortgage provides a tax-free income source, allowing retirees to enhance their cash flow during retirement years  

• Borrowers are not required to make monthly mortgage payments as long as they continue to live in the home,  

Cons  

• Interest on a lifetime mortgage accumulates over time, increasing the loan balance and reducing the homeowner’s equity and reducing the amount of inheritance for family 

• Obtaining a lifetime mortgage could potentially disqualify you from means tested  benefits that you would otherwise be eligible for  

 Adrian MacDiarmid, Head of Mortgages at Barratt Developments, said:  

“Choosing the right type of mortgage is important, as it can help save you a lot of money. While a fixed-rate mortgage is the most popular option overall, there are a lot of new products available now tailored to specific buyers.  

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