What Are Most Common Residential Mortgages In The UK

Jacob Chan

February 23, 2024

If you're in the market for a new home in the UK, one of the most important decisions you'll need to make is how you'll finance your purchase. One option is to take out a residential mortgage, which is a loan that's secured by your home. In this blog post, we'll take a look at the most common residential mortgages in the UK, their pros and cons, and how to choose the right one for your needs.

Different Types of Mortgage:

1. Fixed-Rate Mortgages: Stability and Predictability

The most common type of residential mortgage in the UK is the fixed-rate mortgage. As the name suggests, this type of mortgage has a fixed interest rate for the duration of the loan. This means that your monthly payments will stay the same, even if interest rates rise over time. Fixed-rate mortgages can offer a sense of stability and predictability, which can be especially appealing for those on a tight budget or those who are planning to stay in their home for a long time.

2. Variable-Rate Mortgages: Fluctuating Payments and Short-Term Benefits

Another popular type of residential mortgage in the UK is the variable-rate mortgage. As the name suggests, this type of mortgage has an interest rate that can fluctuate over time. This means that your monthly payments may change based on changes in the market. Variable-rate mortgages can be a good choice for those who are comfortable with a bit of uncertainty and who are looking for the potential for lower payments in the short term.

3. Tracker Mortgages: Tied to Market Conditions

A third type of residential mortgage in the UK is the tracker mortgage. This typeof mortgage is linked to the Bank of England's base rate, which means that the interest rate on your mortgage will track the base rate. If the base rate goes up, your mortgage payments will go up as well. Tracker mortgages can be a good choice for those who are looking for a mortgage that's closely tied to market conditions.

4. Discount Mortgages: Initial Low Rates with Future Increases

A fourth type of residential mortgage in the UK is the discount mortgage. This type of mortgage offers a discounted interest rate for a set period of time, after which the rate will revert to the lender's standard variable rate. Discount mortgages can be a good choice for those who are looking for a low initial rate, but be aware that the rate will go up after the discount period ends.

5. Offset Mortgages: Reducing Payments with Savings Account Balances

A fifth type of residential mortgage in the UK is the offset mortgage. This type of mortgage allows you to offset the balance of your mortgage against the balance of a savings account or current account. The interest you pay on your mortgage is calculated based on the difference between the two balances. Offset mortgages can be a good choice for those who have a large amount of savings and who are looking to reduce their mortgage payments.

Considerations for Choosing the Right Residential Mortgage

So, how do you choose the right residential mortgage for your needs? Here are a few things to consider:

Your budget: Consider how much you can afford to pay each month and choose a mortgage that fits within your budget.
Your financial goals: Are you planning to stay in your home for a long time or do you expect to move in the near future? If you're planning to stay put, a fixed-rate mortgage may be a good choice. If you're planning to move in the near future, a variable-rate mortgage or a tracker mortgage may be a better fit.
Your risk tolerance: Are you comfortable with a bit of uncertainty or do you prefer a more predictable payment schedule? If you're comfortable with uncertainty, a variable-rate mortgage or a tracker mortgage may be a good choice. If you prefer predictability, a fixed-rate mortgage maybe a better fit.
Your savings: Do you have a large amount of savings that you can offset against your mortgage? If so, an offset mortgage