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When it comes to getting a mortgage in the UK, there are several different types that you can choose from, one of which could fit your circumstances and allow you to spread the cost of owning your home.

There are mortgages for those who are just starting out on the property ladder, namely your first-time-buyer mortgage. On the other hand, for prospective landlords, there is a Buy-to-let mortgage, allowing you rent out your property to tenants.

Before you think about comparing mortgages or filling out an eligibility form online, take a look at our handy guide below so you can make an informed decision.

Why do I need a mortgage in the UK?

When thinking about buying a new property in the UK, you will usually have to save up a deposit and think about applying for a mortgage to spread the cost of your purchase (unless you are lucky enough to buy outright!).

A mortgage gives you the opportunity to pay off the cost of your property over the course of many years, though you will have to pay interest on top, which is calculated when you are accepted for your mortgage offer by a chosen lender.

If you want to change the terms of your offer at any point, you will usually have to remortgage, which means changing to another mortgage offer that matches your personal circumstances. For example, if you have started to earn more money, you might want to change to a different mortgage deal that will allow you to pay more per month. However, this does mean re-applying, which may affect your credit score.

Ultimately, a mortgage is there to help you manage the costs associated with buying a property over a long-term period. Finding the right mortgage offer can be tricky, but is made easier by using a mortgage broker or mortgage advisor who can help find the right offer for you.

Our mortgage partner is called Fluent Money, and will allow you to find a mortgage to suit your circumstances from a panel of specialist mortgage lenders.

Mortgage types explained

The first hurdle is finding out which type of mortgage applies to you, so you can search and compare the best mortgage offers to suit your circumstances:

  • First-time buyer mortgage – for those buying their first property, on their own or with another person as part of a joint mortgage
  • Buy-to-let mortgage – for landlords who would like to pay off a property whilst renting it out to tenants to earn additional income
  • Right-to-buy mortgage – for council house tenants to buy their property at a discounted price
  • Remortgage – for homeowners who would like to change their mortgage offer or would like another period of fixed rate interest
  • Equity release mortgage – for older homeowners to release funds from their mortgage during retirement

Other mortgage types you may have heard of include:

  • Interest only mortgage – for those who only want to pay off the interest attached to the mortgage every month, though you will still need to repay the property value
  • Help-to-buy mortgage – for those who want to participate in the Help-to-buy scheme. While the Help-to-buy ISA stopped accepting applications in 2019, you can still apply for a Help-to-buy equity loan to make it easier to afford
  • Lifetime mortgage – for older or retired homeowners who would like to borrow money against a property, while still paying it off every month
  • Tracker mortgage – a variable rate mortgage that tracks the Bank of England’s base rate, meaning that your monthly payments are likely to change

What is a first-time buyer mortgage?

A first-time buyer mortgage is designed for those who are looking at purchasing their very first property, whether that is on their own or with a partner. Other aspects to consider with this type of mortgage include:

  • Fixed-rate or variable rate of interest – you can choose to keep your mortgage payments the same every month for a fixed period or have a variable rate of interest where your payments could go up or down
  • Access in some instances to a 5% deposit – this is often an option for first time buyers who are struggling to raise a deposit of 10% or higher of the property value. However, this can sometimes mean a higher interest rate compared to someone with a lower LTV (Loan-to-value)
  • Stamp duty relief – as a first-time buyer you will also qualify for SDLT relief on properties up to £300,000 in value (correct as of October 2021). If your first home is worth more, then you will have to pay SDLT on any value above this threshold

You can find out more about first-time buyer mortgages here.

What is a buy-to-let mortgage?

A buy-to-let mortgage is designed for prospective landlords who wish to purchase a property for the sole purpose of renting it out to tenants. This could be for landlords with an existing property portfolio or even for brand new landlords who are renting out a property for the first time.

Other aspects to consider with this type of mortgage include:

  • Fixed-rate or variable rate of interest – as a landlord you may choose to keep mortgage payments the same for a fixed period or have a variable rate where your payments could go up or down. However, a common feature of BTL mortgages is that they have a higher rate of interest
  • Large deposit required – many lenders will ask prospective landlords to put up a larger deposit than normal, in the region of 20-40% compared to the usual 10%
  • Interest-only is preferable – many BTL mortgages are interest-only, so that the landlord pays a much smaller amount per month and uses the rental payments to fund the property value, which is due by the end of the mortgage term

What is a right-to-buy mortgage?

A right-to-buy mortgage is designed for council house tenants to purchase their home at a discounted rate, as part of a government scheme that has been in existence since the 1980’s. The discount you receive is dependent on how long you have lived in the property and you may be penalised for selling your council house too soon, so you need to be sure about using the scheme.

Other aspects to consider with this type of mortgage include:

  • Fixed-rate or variable rate of interest – as a council tenant you may choose a fixed rate of interest or variable rate, which could mean your monthly payments change over time
  • Discounted mortgage – the scheme makes council tenants eligible for the following discount:
    • House - 35% discount if you have lived in your council house for three years, and after five years it will increase by 1% every year up to 70% as a maximum
    • Flat - you get 50% discount after three years and after five years it will increase by 2% each year up to 70% as a maximum
  • Use RTB discount as a deposit – some lenders will allow you to utilise your discount as a deposit, which is especially useful for those struggling to raise the necessary deposit for a mortgage

You can find out more about the government right-to-buy scheme here.

What is a remortgage?

Remortgaging is designed for a homeowner who would like to make a change to their current mortgage deal, whether that is a lower interest rate or a higher monthly payment to pay your mortgage off quicker. It can also be due to you coming to the end of a fixed period of interest on your current mortgage deal, and wanting to switch in order to find another fixed rate period, rather than being switched onto a Standard Variable Rate (SVR) that could cost you more.

Ultimately it is just like comparing energy suppliers and switching to a new provider, enabling you to get a better deal or even just a deal that suits your circumstances better than what you had previously. Other aspects to consider with this type of mortgage include:

  • Fixed rate period preferable – many homeowners opt for a remortgage as their current fixed rate period is coming to an end. This allows them to find another fixed rate period and continue paying a fixed amount every month
  • Must have an existing mortgage – remortgaging is only for existing homeowners who are looking to find a new or better mortgage deal that they currently have
  • Could include additional fees – switching to a new mortgage deal could save you money, but there are also product fees and early repayment fees that could outweigh the money you could save. That means that remortgaging isn’t for everyone, so it’s worth weighing up how much you are likely to save against the fees involved

Find out more about remortgaging here.

What is an equity release mortgage?

An equity release mortgage is designed for those who would like to release funds from their home to do so. They are usually aimed at older homeowners who have already paid off the majority of their mortgage but would like to turn some of this into cash that they can spend straight away.

There are two versions of equity release; known as a lifetime mortgage or home reversion mortgage.

Other aspects to consider with this type of mortgage include:

  • Only repaid once you have left your property – interest on the amount you have borrowed accumulates until you have left the property from moving into a care home, or you have died. When the property is sold, the lender then takes it’s share
  • Other options could be better– it’s always worth finding out whether this is a good option or not, as there are additional fees involved and complexities that might not suit your circumstances

You can find out more about equity release mortgages here.

Are you ready to choose a mortgage type?

If you have an understanding of which type of mortgage will be relevant for you, you can start your search. By using MoneyMatcher, our free online eligibility tool, you can narrow down your search and get connected with our mortgage partner, Fluent, to find the right mortgage offer for you.