As a first-time buyer, there are several types of mortgages available to you, each with their own advantages and disadvantages.
Here are the most common types of first-time buyer mortgages in the UK:
With a fixed-rate mortgage, the interest rate you pay stays the same for a set period of time, usually between two and five years. This makes it easier to budget, as your monthly payments will remain the same. However, if interest rates fall, you won’t benefit from lower payments.
Standard variable rate mortgages (SVRs)
An SVR is the default rate that a mortgage lender will put you on when your fixed or introductory rate period comes to an end. The rate can go up or down at any time, and you’ll need to keep a close eye on it to ensure you’re not paying more than you need to.
Tracker mortgages follow the Bank of England base rate, which means your payments will go up or down in line with any changes to the base rate. This can be a good option if you think interest rates will stay low or fall, but you’ll need to be prepared for your payments to increase if interest rates rise.
Discount rate mortgages offer a discount on the lender’s SVR for a set period of time. For example, if the lender’s SVR is 4%, a discount rate mortgage might offer a 1% discount for two years. This can be a good option if you’re looking for lower initial payments, but you’ll need to be prepared for your payments to increase when the discount period ends.
A capped mortgage is similar to a fixed-rate mortgage, but the interest rate can go down if interest rates fall. However, there is a cap on how high the interest rate can go, so you’re protected if interest rates rise.
With an offset mortgage, your savings are linked to your mortgage, which can help reduce the amount of interest you pay. For example, if you have a mortgage of £200,000 and savings of £20,000, you’ll only pay interest on £180,000. This can be a good option if you have significant savings, but you’ll need to be prepared for potentially higher initial payments.
When deciding which type of first-time buyer mortgage is best for you, consider factors such as how long you plan to stay in the property, your income and outgoings, and your attitude to risk. It’s also a good idea to seek advice from a mortgage broker, who can help you understand your options and find the best deal for you.