Choosing the right type of mortgage can save you thousands of pounds over the life of your loan. With several different structures available in the UK, understanding how each one works — and which suits your circumstances — is essential before you commit.
Fixed Rate Mortgages
A fixed rate mortgage locks your interest rate for a set period, typically two, three, or five years, though some lenders offer seven or even ten-year fixes.
How It Works
Your monthly repayment stays exactly the same throughout the fixed period, regardless of what happens to the Bank of England base rate or your lender’s standard variable rate.
Pros
- Payment certainty — you know exactly what you’ll pay each month, making budgeting straightforward
- Protection from rate rises — if the base rate increases, your payments stay the same
- Wide availability — the most competitive part of the mortgage market with hundreds of deals
Cons
- No benefit from rate cuts — if the base rate falls, your payments stay the same
- Early repayment charges (ERCs) — typically 1–5% of the outstanding balance if you leave before the fixed period ends
- Arrangement fees — the lowest rates often come with higher product fees (£500–£2,000)
Who It Suits
Fixed rates suit most borrowers, especially those on tight budgets who need payment certainty, first-time buyers adjusting to mortgage costs, and anyone who prefers predictability over potential savings.
Standard Variable Rate (SVR)
Every mortgage lender has a standard variable rate. This is the default rate you move onto when any introductory deal (fixed, tracker, or discount) expires.
How It Works
The SVR is set by your lender and can change at any time, by any amount. It is not directly tied to the Bank of England base rate, although lenders generally move their SVRs in the same direction.
Key Facts
| Feature | Detail |
|---|---|
| Typical SVR (2026) | 7.0–8.5% |
| Fixed period | None — it is ongoing |
| ERCs | None — you can leave at any time |
| Overpayments | Usually unlimited |
Why You Should Avoid It
SVRs are almost always significantly more expensive than the best available deals. On a £200,000 mortgage, the difference between an SVR of 7.5% and a fixed rate of 4.5% is roughly £370 per month — over £4,400 per year. Always remortgage before your deal ends.
Tracker Mortgages
A tracker mortgage has an interest rate that moves directly in line with a nominated external rate — almost always the Bank of England base rate.
How It Works
Your rate is expressed as the base rate plus a set margin. For example, base rate + 0.75%. If the base rate is 4.5%, you pay 5.25%. If the base rate drops to 4%, you pay 4.75%.
Pros
- Transparent — your rate moves in lockstep with an independently set rate
- Potential savings — if the base rate falls, your payments reduce automatically
- Lower starting rates — trackers sometimes offer lower initial rates than comparable fixed deals
Cons
- Payment uncertainty — your payments rise if the base rate increases
- No cap (usually) — most trackers have no upper limit on how high your rate can go
- Budgeting difficulty — monthly payments can change at each base rate decision
Tracker vs Fixed — A Quick Comparison
| Feature | Fixed Rate | Tracker |
|---|---|---|
| Payment certainty | Yes | No |
| Benefits from rate cuts | No | Yes |
| Exposed to rate rises | No | Yes |
| Early repayment charges | Usually | Sometimes |
| Starting rate | Often slightly higher | Often slightly lower |
Discount Mortgages
A discount mortgage offers a set discount below your lender’s SVR for a fixed period.
How It Works
If your lender’s SVR is 7.5% and you have a 2% discount, you pay 5.5%. However, if the lender raises their SVR to 8%, you pay 6%. The discount stays the same, but the underlying rate can change.
Important Distinction
Unlike a tracker, a discount mortgage is not linked to the base rate. It follows the lender’s SVR, which the lender can change at their discretion. This makes discount mortgages less transparent than trackers.
Offset Mortgages
An offset mortgage links your savings to your mortgage to reduce the interest you pay.
How It Works
Your savings are held in an account linked to your mortgage. The lender offsets your savings balance against your mortgage balance when calculating interest. For example:
- Mortgage balance: £200,000
- Savings balance: £30,000
- Interest charged on: £170,000
You do not earn interest on your savings, but the interest you save on your mortgage is equivalent — and because mortgage interest savings are tax-free, higher and additional rate taxpayers benefit disproportionately.
Who It Suits
Offset mortgages suit people with significant savings they want to keep accessible, higher and additional rate taxpayers who would otherwise pay 40–45% tax on savings interest, and self-employed borrowers holding cash reserves for tax bills.
Read more about choosing the best mortgage rate for your circumstances.
Interest-Only Mortgages
With an interest-only mortgage, your monthly payment covers only the interest — you do not repay any of the capital. The full loan amount remains outstanding and must be repaid at the end of the term.
Residential Interest-Only
Residential interest-only mortgages are now much harder to obtain than before the 2008 financial crisis. Lenders typically require:
- A large deposit (usually 25–50%)
- A credible repayment strategy (investments, property sale, pension lump sum)
- High income or significant assets
Buy-to-Let Interest-Only
Interest-only is standard for buy-to-let mortgages, where the strategy is to repay the loan by selling the property at the end of the term or through rental income.
Capped Rate Mortgages
A capped rate mortgage is a variable rate deal with an upper limit (cap) on how high your rate can go. These were more common in the past and are now relatively rare.
Features
- Rate can go up and down, but not above the cap
- Usually linked to the SVR or base rate
- The cap provides some protection against extreme rate rises
They are worth considering if available, but the limited product range means they rarely compete with the best fixed or tracker deals.
How to Choose the Right Mortgage Type
| Your Situation | Recommended Type |
|---|---|
| Want payment certainty | Fixed rate |
| Believe rates will fall | Tracker |
| Have large savings | Offset |
| Planning to move soon | Tracker (no ERC) or short fix |
| On lender’s SVR | Remortgage immediately |
| Buying to let | Interest-only with repayment plan |
The most important step is to compare deals across different types using a mortgage calculator and consider speaking to a mortgage broker who can access deals across the whole market.