Every mainstream mortgage is the same machine — you borrow a lump sum secured on the home and repay it with interest over 25 to 40 years. The products differ in one main dimension: how the interest rate behaves over time, and who carries the risk of it changing. Get that one choice right and the rest is detail.
This guide explains each type in plain English, the trade-offs lenders do not advertise (rate versus fee, flexibility versus certainty), and the two gatekeeping steps — affordability stress tests and the agreement in principle — that decide what you can actually borrow. It is guidance, not advice: a whole-of-market mortgage broker can advise on your specific case, and for most buyers is worth having.
Fixed rates: certainty, at a price
A fixed-rate mortgage locks your interest rate — and therefore your exact monthly payment — for a set period, usually two or five years (three- and ten-year fixes exist). Whatever the Bank of England does, your payment does not move until the fix ends. The great majority of new UK mortgages are fixes, because most households value a predictable payment above everything else.
The costs of that certainty: early repayment charges (typically 1–5% of the loan) if you exit during the fixed period, and the risk of locking in just before rates fall. When the fix ends you roll onto the lender’s expensive standard variable rate unless you remortgage — set a reminder six months out, which is when most lenders let you book a new deal.
Trackers, discounts and the SVR
A tracker follows the Bank of England base rate at a fixed margin — say base + 0.75% — moving within days of any base-rate change, in both directions. You carry the rate risk; in exchange, trackers often come with low or no early repayment charges, which suits anyone who may move, sell or overpay heavily soon.
The standard variable rate (SVR) is the lender’s own administered rate — typically far above the best deals, changeable at the lender’s discretion, and the default you drift onto when any deal period ends. Nobody should sit on an SVR for long by accident. A discount mortgage offers a reduction from the SVR for a period: cheap-looking, but the underlying rate is whatever the lender decides, which makes it the least predictable mainstream product.
An offset mortgage links your savings to the loan: savings of £20,000 against a £200,000 mortgage mean you pay interest on £180,000. You give up savings interest in exchange, so offsets tend to suit higher-rate taxpayers with substantial, fluctuating cash balances.
Two-year vs five-year fix: the real question
The most common fork in the road. A five-year fix buys longer certainty and usually saves on fees (one remortgage instead of two, at £1,000-plus a time all-in); a two-year fix frees you sooner if rates fall or your plans change. Neither is "correct" — it is a judgement about your own horizon: if you might move, grow the household or sell within three years, a long fix’s early repayment charges can cost more than the rate saves.
The illustration below shows the kind of gap involved on a £200,000 repayment loan over 25 years (rates purely illustrative — pricing between two- and five-year fixes shifts with market expectations, and either can be the cheaper at a given moment). Run your own numbers with the calculator underneath.
Standard repayment mortgage, rate held flat for the whole term — real deals reprice every few years. Illustration only, not financial advice.
Rate vs fee: do the whole-cost sum
Lenders often price the same product two ways: a lower rate with a product fee (commonly £995–£1,499), or a higher rate fee-free. The headline rate alone cannot tell you which is cheaper — it depends on the loan size. Big loans favour paying the fee for the lower rate; small loans usually favour fee-free, because the fee outweighs the interest saved.
The honest comparison is total cost over the deal period: (monthly payment × months) + fees. On a £120,000 loan, a 0.2% rate saving is worth roughly £480 over two years — less than a £999 fee. On a £400,000 loan the same saving is worth about £1,600, and the fee earns its keep. Adding the fee to the loan instead of paying upfront means paying interest on it for decades; avoid it if you can.
Stress tests and the agreement in principle
Lenders do not just check you can afford today’s payment — they test your finances against a higher notional rate to make sure you could still pay if rates rose. That stress rate, together with loan-to-income caps (most mainstream lending sits below 4.5× income, with regulatory limits on how much lenders can do above that), is why the maximum loan can come out lower than the headline "4–5× salary" folklore suggests.
An agreement in principle (AIP, also called a decision in principle) is a lender’s soft-check indication of what it would lend you. It is not a guarantee — the full application, with payslips, bank statements and the property valuation, comes later — but agents and sellers increasingly expect one before treating an offer as serious. Most use a soft credit search that leaves no footprint; check before applying. The regulator’s consumer arm, MoneyHelper, has a good plain-English walkthrough of the full application process.
Repayment vs interest-only, and where your money goes
Almost all residential mortgages today are repayment: each payment covers that month’s interest plus a slice of the debt, so you owe nothing at the end. Interest-only — pay just the interest, repay the whole capital at term — survives mainly in buy-to-let and for borrowers with a credible repayment vehicle, because lenders demand one.
One thing that surprises first-time borrowers: in the early years, most of each repayment is interest, and the balance barely moves. The split below is a typical first-year picture on a 25-year loan at around 5% — it tilts steadily towards capital as the years pass, which is also why overpaying early (most deals allow 10% a year penalty-free) has such an outsized effect on total interest.
Sources: MoneyHelper — mortgages · FCA — mortgage regulation · Financial Ombudsman Service
Brokers, direct deals and complaints
A whole-of-market broker sees products (and lender quirks) you cannot, is paid partly or wholly by commission from lenders, and must tell you about any fees upfront. Some deals are direct-only, so a quick check of your own bank’s pricing alongside broker advice covers both bases. Mortgage advice is regulated by the Financial Conduct Authority, and if something goes wrong with advice or a lender’s handling, the Financial Ombudsman Service adjudicates free of charge.