Back to: Homeownership

What is a mortgage?

Fixed Rate

With a fixed rate mortgage, your interest rate will stay the same for a set period of time. You’ll know exactly how much you’re paying each month. The set period of time will differ throughout your mortgage lifetime, but they usually come in either 2 year, 3 year, 5 year, 7 year, 10 year or more.

During this set time period, your rate won’t change based on the Bank of England’s base rate. So even if the base rate goes up, your payments will stay the same. But this also means that your payments won’t go down, even if the base rate decreases.

Bear in mind that some fixed rate mortgages include early repayment charges. At the end of your fixed rate period, your mortgage will usually be transferred automatically to a Standard Variable Rate (SVR). You would usually look to contact your mortgage broker around 6 months before the fixed rate period ends to explore your options.

Variable/Tracker

With a variable/tracker rate mortgage your interest rate and monthly payments are linked to the Bank of England’s base rate and will typically follow the movement in this rate. This is certain with a tracker mortgage, but may or may not move with a variable product as these rates are determined by the lender.

Interest only

With an interest only mortgage, your monthly payments only go towards paying off the interest on the amount you’ve borrowed. Then at the end of the mortgage term, you’ll repay the full amount borrowed. You’d be expected to have a credible repayment strategy in place, showing how you’d repay the loan at this point.

Affordable Housing

For more detailed information on a number of UK government schemes to aid people into affordable housing options can visit https://www.gov.uk/affordable-home-ownership-schemes and search for the titles below.

Shared Ownership and Shared Equity

Shared Ownership and Shared Equity mortgages are increasingly popular for first-time buyers looking to get on the property ladder. ‘Traditional’ mortgages typically require a significant deposit, which can be difficult for some to manage.

Purchasing a shared ownership property may relieve some of this pressure, as you will purchase only part of the property initially and pay rent to a housing association or landlord for the share you don’t yet own. You can then purchase further shares as and when you can afford to.

Through a shared equity scheme, you won’t need to take out a mortgage for the full amount as the balance of the purchase price will be loaned by a third party in return for equity in the property (which must be repaid at a later date).

Right to Buy

Right to Buy is a government backed mortgage scheme designed to help you buy the home you currently rent at a discounted price. This option usually applies to social or council housing properties.

Right to Acquire

With right to acquire you may be able to buy your rented housing association home at a discount through the Right to Acquire scheme.

You and your landlord must meet the eligibility requirements to apply.

Discounted Market Scheme/First homes

A discounted market scheme provides a discount on the full market value. You pay no rent or make any contributions on this, but instead sell the property on at a discounted price.

This may have restrictions on income, location or could include other restrictions.

The government’s First Homes scheme provides a discount of between 30% and 50% of the property’s open market value. The scheme is available for First Time Buyers with a combined household income of less than £80,000 (£90,000 in Greater London). The purchase price of the home after the discount must be less than £250,000 (£420,000 in Greater London). A First Home should be the buyer’s only home, with their local authority providing access to the scheme.