Types of mortgage

A mortgage is a loan secured against a home, property or land¹. That single word, secured, is what separates a mortgage from every other kind of borrowing: the lender has a legal claim on the property, and the loan stays secured against it until it is paid off². If the borrowing is not repaid, the lender can ultimately take the property back. This is why every mortgage advert in the UK carries the warning that your home may be repossessed if you do not keep up repayments³.

The most common form of secured lending is a mortgage⁴. When a bank or building society agrees to lend, it issues a formal written offer to lend an approved amount against a property⁵. From there, the choices a borrower makes fall into two separate questions: how the loan is repaid (repayment or interest-only), and how the interest rate behaves (fixed, tracker or variable). Those two choices can be combined, so an interest-only mortgage can come with a fixed or a variable rate⁶.

A mortgage is a loan secured on your home

Secured lending means the borrower pledges an asset, here the property, as collateral for the debt. Mortgages are essentially loans secured against a home, property or land¹, and the security lasts for the life of the loan: a mortgage is secured against the property you are buying until it is paid off². This is what allows lenders to offer mortgage rates and terms that unsecured borrowing, such as a personal loan or a credit card, does not match, because the lender's risk is backed by the value of the property.

The security also works in the other direction. Because the debt is tied to the property, the consequences of not keeping up repayments are more serious than with unsecured debt. UK legislation requires that all agreements secured on land carry the warning: "Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it"³. A mortgage is not the only borrowing that can be secured on a home: a second mortgage is also secured on the borrower's property, except that any claims on it rank behind those of the first lender¹⁰. Government support can be secured too. Support for Mortgage Interest, which helps some benefit claimants with mortgage interest payments, is a form of a loan secured against your property¹¹.

The practical points for a borrower are straightforward. The property cannot be sold free of the mortgage without the loan being repaid, the lender has a legal interest in the property until the final payment, and any further borrowing secured on the same home sits behind the first mortgage if things go wrong. The wider guide to how a mortgage works covers the mechanics of the loan itself, and second charge mortgages covers additional borrowing secured on the same property.

Two main ways to repay: repayment and interest-only

Every mortgage falls into one of two repayment structures, or a combination of both. With a repayment mortgage, each monthly payment pays off a bit of the loan as well as some interest; this is by far the more common type of deal¹². With an interest-only mortgage, monthly repayments just cover the interest on the mortgage, and the capital, the original amount borrowed, is paid off at the end of the term in one go¹³.

The difference in monthly cost is significant. Monthly repayments on an interest-only mortgage are lower than on repayment mortgages, sometimes called capital repayment mortgages¹⁵. The trade-off is equally significant: the interest-only borrower still owes the entire original loan on the final day of the term, and must have a credible plan to repay it. The Financial Ombudsman Service notes that money to meet that final payment can come from different sources, such as an endowment policy or savings¹³.

Because the two structures are so different, the rules require lenders to be explicit about which one a borrower is getting. The FCA's Mortgage Conduct of Business sourcebook requires a clear statement of whether the regulated mortgage contract is an interest-only mortgage, a repayment mortgage, or a combination of both¹⁶. A mortgage offer, the formal written offer from a bank or building society to lend an approved amount against a property, must make this plain⁵. The side-by-side comparison of repayment vs interest-only goes into the numbers in more depth.

Repayment mortgages: clearing the loan over the term

A repayment mortgage is one where the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest⁵. Each payment covers the interest charged that month and pays off some of the capital, the initial loan amount¹⁷. Provided every payment is made, the balance falls month by month until the mortgage is fully repaid at the end of the term¹⁴.

This structure is the default choice in today's market. Most mortgage providers and clients prefer repayment mortgages, which means the mortgage will be fully repaid at the end of the term if all payments are made¹⁴. It is also the structure most government-backed schemes expect. Scotland's First Homes Fund, for example, requires the mortgage to be capital repayment and not interest-only¹⁸.

The main advantage is certainty: the debt shrinks over time rather than sitting unchanged, and there is no need to build a separate pot to clear a lump sum decades later. The main cost is the higher monthly payment compared with interest-only, because each payment is doing two jobs at once. In the early years most of each payment is interest, and the pace at which the capital falls picks up later in the term, which is worth knowing if a borrower is considering making overpayments or extending the mortgage term. The full guide to repayment mortgages covers how the balance falls and what happens if payments are missed.

Interest-only mortgages and the need for a repayment plan

An interest-only mortgage requires the borrower to make payments covering the monthly interest on the total mortgage balance over an agreed term; at the end of the term, the full capital must be repaid¹⁹. The monthly cost is lower, but nothing is being paid off the debt itself: the borrower pays back the interest on a monthly basis and repays the capital at the end of the mortgage term²⁰.

Because the final payment is the whole loan, lenders require a repayment plan, and the rules set out what can count. Acceptable repayment strategies for many residential interest-only mortgages include a savings plan, an investment portfolio, a pension or other assets you plan to sell⁶. The FCA's rules give examples too: regular deposits into a savings or investment product, periodic repayment of capital from irregular sources of income, the sale of assets such as another property or other land, and, for a shared equity credit agreement or a retirement interest-only mortgage, the sale of the property which is the subject of the agreement²¹.

Interest-only mortgages are available with fixed and variable rates⁶, so the repayment structure and the rate type are independent choices. They also appear in later-life lending. A lifetime mortgage is a type of interest-only mortgage, as full repayment of capital and interest is not required over the term²¹, and it is repaid when you die or go into long-term care²². A retirement mortgage can involve monthly repayments on an interest-only or full repayment basis²³. The rules recognise these variants: a shared equity credit agreement may be an interest-only mortgage²¹.

The dedicated guide to interest-only mortgages covers the repayment strategies lenders accept in detail, and retirement interest-only (RIO) mortgages and equity release cover the later-life versions.

Fixed or tracker: how each interest rate behaves

Separate from how the loan is repaid is how the interest rate is set. Mortgages generally fall into two categories: fixed-rate deals, which guarantee your rate for a set number of years, and variable rates⁷. Within variable rates there are further types, and a mortgage checklist used by debt advisers lists four: fixed rates, tracker rates, discount variable rates and standard variable rates (SVR)⁸.

A fixed-rate mortgage guarantees the rate for a set number of years⁷, so the monthly payment to the lender stays the same regardless of what happens in the wider economy. A tracker mortgage follows, or tracks, the Bank of England's base rate²⁴. The lender sets the interest rate initially, and this can be set to be equal, above or below the Bank Rate; the rate then tracks, moving up or down with, changes to the Bank Rate¹. A discount variable rate offers a discount on the lender's own variable rate, and the standard variable rate is the lender's own variable rate, typically the rate a borrower moves onto when a deal ends⁸.

Which works out cheaper is not knowable in advance. A tracker costs less than a fix if Bank Rate falls and more if it rises; a fix buys certainty rather than a lower price. The comparison of fixed vs tracker sets the two side by side, and what to do when your fixed rate ends covers the point at which most borrowers face this choice again. Individual pages cover fixed rate mortgages, tracker mortgages, standard variable rates and discounted rate deals.

One historical footnote: some older mortgages were linked to LIBOR rather than Bank Rate, and borrowers with LIBOR-linked mortgages were advised to review their mortgage documents, such as the mortgage offer or terms and conditions, to check whether their mortgage might be impacted²⁵.

Self-employed borrowers can get all standard mortgage types

There is no such thing as a self-employed mortgage: self-employed applicants apply for the same mortgage products as employed homebuyers⁹. Repayment, interest-only, fixed, tracker and variable rate deals are all available on the same terms of product type. What differs is the application process, because a self-employed person's income is assessed differently, and self-employed people pay different types of National Insurance to employed people, which is part of why lenders need to establish which category an applicant falls into²⁶.

The practical difference is in how easy the application is. It can sometimes be harder to secure a mortgage if you are self-employed¹², and each lender has its own affordability criteria and may place more weight on certain factors²⁷. How much can be borrowed is set by income multiples rather than employment status: applicants meeting a bank's eligibility criteria are usually allowed to borrow up to four-and-a-half times their annual household income, although this varies between lenders⁹, and some borrowers may be offered up to six times their salary²⁸. The guide to how much can I borrow covers how lenders work this out.

Self-employment can also open up particular structures. A pension-scheme mortgage is mainly suited to self-employed people and higher rate taxpayers²⁰. The full guide to mortgages for self-employed people covers the evidence lenders want, and mortgage advice: brokers, advisers and applying direct covers getting help matching circumstances to lenders.

How lenders price and assess mortgages across different borrowers

Mortgage pricing is driven by the characteristics of the loan and the borrower, not by who the borrower is demographically. Research published by the Financial Conduct Authority in December 2025 found that, after controlling for mortgage type and risk factors, there appears to be no difference in mortgage pricing across ethnicity, sex, sexual orientation and having a health condition, though product types differ between groups²⁹. What a borrower is offered depends on the mortgage type, the size of the loan relative to the property's value, and the lender's own assessment.

That assessment draws on several factors. A mortgage lender will base an application on several things including your credit file, the value of your house, and how much you want to borrow³⁰. Each lender has its own affordability criteria and may place more weight on certain factors²⁷. The lender may also need a separate valuation to confirm the value of the property³¹; many lenders offer free valuations as part of their mortgage deals, and where a fee is charged, some lenders charge a flat fee, for example £100, while others use a sliding scale based on the property's value, and it should not cost more than a few hundred pounds³².

Credit history affects which products are available rather than whether any mortgage is possible. Products aimed at borrowers with poor credit histories are known by several names: bad credit mortgages, adverse credit mortgages and sub-prime mortgages¹⁷. The rules also require the total charge for credit to include certain costs, such as any fee payable to a mortgage intermediary for arranging the contract and any higher lending charge³³, so the headline rate is not the whole cost. The pages on loan to value, getting a mortgage with bad credit, mortgage valuations and surveys and how the APRC is worked out cover each of these in depth.

What can go wrong and where to get help

The risk attached to every mortgage type is the same: because the loan is secured on the home, falling behind can lead to repossession. The required warning is blunt: "Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it"³. Repossession is a last resort, and there are protections and sources of help at every stage.

Lenders must follow rules when a borrower falls into arrears, and the FCA's Mortgage Conduct of Business sourcebook governs how firms must treat customers in difficulty¹⁶. The Financial Ombudsman Service handles complaints about how lenders deal with arrears, including the charges they apply³⁴. If you are having problems with your mortgage, you could get help from your lender if they have signed up to the Mortgage Charter³⁵. Advice NI lists options that include converting your mortgage to interest-only for a period to help clear the arrears³⁶, which shows how the repayment types described above can be used as a tool in difficulty as well as a choice at the outset.

Support also exists outside the lending relationship. Support for Mortgage Interest provides financial assistance in the form of an interest-bearing loan for claimants of certain means-tested benefits³⁷. Free, independent debt advice is available from charities and advice services covering mortgage problems among many other debt types³⁸, and Citizens Advice explains the main types of borrowing money and where to get help³⁹. Options for dealing with unmanageable secured debt include remortgaging, which involves switching from one mortgage to another, either a new deal with your existing lender or a new mortgage with a different lender⁴⁰, and equity release, which allows you to borrow money against your home while still living there⁴¹. Equity release has its own risks, and the Equity Release Council publishes a consumer guide to the products²³.