Overview of UK Mortgages

There are a wide range of mortgages availble in the uk. Key characteristics include:

• Length of Repayment Period - typical repayment periods range from 25 - 35 years
• Interest Rate - see our overview of interest rates below
• Loan to Value (LTV) Ratio - this is the value of the mortgage as a percentage of the value of the property. A higher LTV often results in a higher interest rate being payable.

Types of Interest Rates:

• Fixed Rate - this involves paying a fixed rate of interest on the amount borrowed for a fixed period of time, typically 2 - 5 years. This type of mortgage suits individuals who like to know exactly how much their repayments will be each month, and protects the customer against any increases in market interest rates.
• Tracker Rate - this type of mortgage is where the interest rate tracks the Bank of England base rate. The interest rate you pay is a set percentage above the BoE rate, e.g. Base Rate + 2%. This type of mortgage is often cheaper than fixed rate mortgages, but customers run the risk of increased mortgage payments when interest rates rise.
• Variable Rate - at the end of the initial mortgage period where the interest rate is either fixed or tracker, the interest rate reverts to the lender's own variable rate. This rate is determined by the lender, although in practice it often follows the BoE base rate.

Special Types of Mortgages:

• Offset Mortgages - this is where the value of your savings are offset against the mortgage, saving you interest on your mortgage, resulting in your being able to repay your mortgage quicker
• Shared Equity Mortgages - this type of mortgage is now only offered by a number of housebuilders. It involves the customer taking out a mortgage on part of the property (e.g. 80%), and the housebuilder providing a loan for the remainder (e.g. 20%). THe key advantage is that the customer needs only to find a smaller deposit, e.g. 5% rather than a typical 10-15% on a normal mortgage.
• Lifetime Mortgages - This is a type of mortgage often used to release equity from a property with little or no outstanding mortgage.
• Interest Only Mortgages - This can also be used as a means of releasing equity from your home. Other uses of this type of mortgage is by landlords. The deposit requirement on an interest only mortgage is often significantly higher than normal mortgages, and indeed most lenders are now removing this type mortgage altogether.