This article outlines key mortgage types, including repayment, interest-only, buy-to-let and later-life options, with some pros and cons.
05/01/2026By Pauzible Team · Editorial Team
The UK mortgage market offers a wide variety of products for different types of borrower, from first-time buyers to retirees to buy-to-let landlords. With interest rates having risen significantly since December 2021, picking the right mortgage is now more important than ever.
Repayment vs. Interest-Only Mortgages
Repayment mortgages are the default choice for most UK borrowers. Each monthly payment includes both interest and a portion of capital. Thus, your mortgage balance reduces over the mortgage term, usually 25 years, until it becomes zero at the end. Therefore, provided you meet your payments, you will own your home outright by the end.
Interest-only mortgages only require interest payments during the mortgage term, with the capital repaid in full at the end, usually via savings, investments or sale of the home. These were more common before 2008, but now account for just 9% of all mortgages, with around 541,000 pure interest-only mortgage loans outstanding in 2024 [1]. Interest-only mortgages are now largely reserved for buy-to-let or later-life borrowing.
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Fixed-Rate vs. Variable-Rate Mortgages
Fixed-rate mortgages offer a guaranteed interest rate for a set initial period, typically 2, 3, 5, 7 or even 10 years. During this term, your monthly repayments stay the same, regardless of wider market changes. This predictability makes fixed rate deals especially popular when interest rates are volatile or expected to rise. As of early 2024, a significant majority of first-time buyers, around 85% to 90%, opted for fixed-rate mortgages to lock in certainty amidst fluctuating rates [2].
Variable-rate mortgages, including tracker and discount mortgages, fluctuate based on market conditions. Tracker mortgages typically follow the Bank of England base rate plus a set margin (e.g. base + 1%). Discount mortgages, on the other hand, offer a discount off the lender’s standard variable rate (SVR) for a limited time. These mortgages can be cheaper initially but come with the risk of higher payments if rates rise. That risk materialised in 2023, when the base rate peaked at 5.25%, driving up monthly costs for many on variable deals. [3].
While variable products may offer flexibility, such as lower early repayment charges, they are typically less predictable.
Low-Deposit Mortgages for First-Time Buyers
Saving for a deposit is a major hurdle for first-time buyers. As of 2024, the average first-time buyer deposit reached £61,000, around 20% of an average starter home price of £311,000. This high bar pushes many to seek family help or explore low-deposit mortgage schemes. [4]
The Mortgage Guarantee Scheme, which encouraged lenders to offer 95% loan-to-value (LTV) deals, has helped some buyers, though it is now winding down. These mortgages are still offered, but come with higher interest rates, often at around 4.5–5% compared to under 4% for 75% LTV mortgages.
Family-assisted or guarantor mortgages, such as “springboard” loans, allow a family member to support your mortgage using savings and property equity. These can offer 100% mortgages without a deposit but carry added complexity.
No-Deposit Mortgages – Are They Back?
100% mortgages disappeared after the 2008 crisis. But in 2023, Skipton Building Society launched the first no-deposit mortgage in 15 years: a 5-year fixed “Track Record” mortgage designed for renters who have consistently paid rent and bills for 12+ months.
Other lenders, such as Generation Home and Gable Mortgages, launched similar products in 2025. These loans often cap the borrowing based on your rental history. While they help renters onto the ladder, rates are higher, Skipton’s version charges around 5.5% interest [6].
Zero-deposit borrowers also come with higher risk: a small drop in property prices could lead to negative equity, where you owe more than your home is worth.
Buy-to-Let Mortgages
Buy-to-let (BTL) mortgages are for landlords purchasing rental properties. They are often interest-only. Lenders typically require 25% - 40% deposits and assess the loan based on expected rental income, subject to a basic level of personal income.
BTL lending has shrunk recently, due to higher interest rates and tax changes. In 2023, only 83,400 BTL mortgages were approved, down from 187,000 in 2022 [7]. BTL loans made up just 7.5% of total lending by value in 2023, the lowest since 2010. Lenders now also stress test loans assuming rents cover 125–145% of payments at higher hypothetical rates.
Lifetime Mortgages (Equity Release)
Lifetime mortgages, available from age 55, let homeowners borrow against property equity with no monthly payments. The loan and interest are repaid upon death or move into long term care. These products come with a no-negative-equity guarantee and borrowers can stay in their home for life.
After hitting a record £6.2 billion in lending in 2022, the equity release market shrank to £2.6 billion in 2023, as rates rose and borrowing cooled. Rates peaked above 6% in late 2022 but are easing in 2025 [8]
More than half of new customers now opt for drawdown plans, only borrowing as needed. Professional advice is required and borrowers should weigh how equity release will impact inheritance and long-term financial plans.
Retirement Interest-Only (RIO) Mortgages
RIO mortgages offer a later-life option for those over 55 who can afford monthly interest payments. Unlike lifetime mortgages, the debt does not grow over time. The balance is repaid when the borrower dies or moves into long term care.
The RIO market is small but growing. Just 326 RIOs were issued in Q2 2024, compared to over 5,600 lifetime mortgages in the same period. These mortgages suit retirees with sufficient income who want to avoid the compounding debt of equity release. [9]
Other Specialised Mortgage Types
Offset Mortgages: These link your savings to your mortgage, reducing the interest you pay. For example, if you have a £200,000 mortgage and £20,000 in savings, interest is charged only on £180,000. Great for high savers or irregular earners, though these often come with slightly higher rates.
Shared Ownership Mortgages: Let buyers purchase a share (e.g. 25%–75%) of a home and rent the rest from a housing association. These help people with lower incomes or deposits get onto the property ladder and are often available on new builds. [10]
Second Charge Mortgages: These allow you to borrow additional funds without changing your main mortgage. Often used for home improvements, but rates are higher and your property is still at risk of repossession if payments are missed.
Bridging Loans: Short-term, high-interest loans used to "bridge" financial gaps, such as buying a property before selling your current one. Common for auction purchases or time-sensitive deals. These loans are niche and not for long-term use. Again, rates are high and your property is still at risk of repossession if payments are missed.
Conclusion
The UK mortgage market is diverse and evolving, offering products to suit buyers at every life stage. From first-time buyers navigating high deposits to retirees unlocking equity, the right mortgage can vary significantly based on your needs, income and future plans. With interest rates higher than in the 2010s, careful selection is now more crucial than ever.
Always use comparison tools, speak to independent advisers and understand both short-term affordability and long-term impact before deciding. And as new products emerge, such as green mortgages for energy-efficient homes, staying informed will also help you make optimal property-related financing decisions.
FAQs:
Q. What is the difference between a repayment and an interest-only mortgage?
A. A repayment mortgage includes both capital and interest in your monthly payments, meaning your capital balance reduces over time until it is fully paid off by the end of the mortgage term. By contrast, an interest-only mortgage requires you to pay just the interest each month, with the full amount of the mortgage loan repaid at the end, typically through savings, investments or property sale. Interest-only is now mostly used for buy-to-let and some later-life lending.
Q. Should I choose a fixed or variable-rate mortgage?
A. Fixed-rate mortgages offer predictable monthly payments over a set period, usually two or five years, which is ideal when rates are volatile or expected to rise. Variable-rate mortgages, such as tracker or discount deals, fluctuate based on market changes and may be cheaper initially but carry the risk of increasing if interest rates rise.
Q. Can I get a mortgage with a small or no deposit?
A. Yes, but with caveats. Low-deposit mortgages (e.g. 95% LTV) are still available, though they often come with higher interest rates. A few lenders now offer 100% mortgages. However, these products carry higher rates and the risk of negative equity if house prices fall and usually require family guarantees.
Q. What is a buy-to-let mortgage and how does it work?
A. Buy-to-let mortgages are designed for landlords and are usually interest-only. Lenders assess affordability based on expected rental income, subject to certain minimum personal earnings, and they often require a minimum 25% - 40% deposit.
Q. What are lifetime mortgages and how are they different from RIOs?
A. Lifetime mortgages are a form of equity release allowing homeowners aged 55+ to borrow against their home without having to make any monthly repayments. As a result, the loan grows over time and is repaid when the borrower dies or enters into long-term care. RIO (Retirement Interest-Only) mortgages also target older borrowers but require regular interest payments and the loan amount to be finally repaid does not grow over time.
Q. Are there specialist mortgages for unique financial needs?
A. Yes. Options include offset mortgages for those with savings, shared ownership schemes for buyers with lower incomes, second charge mortgages for borrowing against home equity and bridging loans for short-term property finance needs. Each has specific uses and risks, and expert advice is key.
About the author
Pauzible Team
Editorial Team
The Pauzible Team consists of finance professionals and property market specialists dedicated to reinventing home ownership and BTL financing. With deep expertise across UK real estate and innovative financial products like Equity Partnership Agreements, we provide landlords and homeowners with the insights they need to unlock equity, navigate market volatility, and build sustainable wealth through property. Our mission is to make complex property finance simpler, quicker, and more accessible for everyone.
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