Understanding different types of mortgage
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.
Average monthly searches – 14,800
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.
- Peace of mind that your monthly payments will stay the same
- Ideal for those on a tight budget looking for stability
- 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
First-time buyer mortgage
Average monthly searches - 12,100
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% of homeowners are unfamiliar with what this mortgage entails.
- 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
- 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
Average monthly searches – 9,900
Offset mortgages can potentially help reduce the interest you pay. However, 89% of homeowners are unaware of this mortgage type.
- 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
- 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
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.
- 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
- 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
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
- 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,
- 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.
“A green mortgage, for example, could be a great choice if you’re purchasing an energy-efficient new build home. The many options available mean that it is always a good idea to take advice from a suitably qualified and regulated mortgage adviser who will be able to help you find the product best suited to your own individual circumstances.”
Whether you’re a first-time buyer or existing homeowner, we have a wide range of home buying offers to help you move.