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What types of mortgages are available for first-time buyers?

08.09.2021

By Beehive Money

What types of mortgages are available for first-time buyers?

What types of mortgages are available for first-time buyers?

You’re able to access most types of mortgages as a first-time buyer and there are several types to choose from. Here's a summary of the most popular types that you’ll come across in your search for your first mortgage with a few things to note about them all. Let’s get started. 

Fixed-rate mortgages 

A fixed-rate mortgage is exactly that, a mortgage where the interest rate you pay is fixed for a certain amount of time (this is called the initial period). Here are some key points about fixed-rate mortgages.  
  • The initial period usually lasts between two and five years, but can be longer.
  • No matter how much interest rates change, you’ll pay the same each month for your agreed initial period unless you decide to overpay on your mortgage. 
  • Because your interest rate will be fixed, you'll know exactly how much you’ll be paying each month. This can help you to plan without facing any nasty surprises. So, if you’re on a tight budget and need certainty and stability, fixed-rate mortgages are a good idea.  
  • However, if the Bank Rate changes and interest rates become lower, you won't benefit as your rate will remain the same. 
  • At the end of the fixed period, lenders will typically transfer you onto their standard variable rate (SVR), which is likely to be higher than the rate you paid during the initial period so it’s worth looking for a new deal a few months before your initial period is up.  

Variable mortgages 

A variable mortgage is also how it sounds on the tin. The interest rates can go up or down each month. This means your monthly payments could also change. Here are some facts about variable mortgages.  
  • Similar to fixed-rate mortgages, the initial period usually lasts between two and five years, but can be longer. 
  • As the interest rates can go up or down you won’t know exactly how much each monthly repayment will be.  
  • The standard variable rate that we mentioned in the fixed rate section above will be set by each lender.  
There are two types of variable rate: 

Discount mortgage 
  • A discount mortgage is a type of variable rate mortgage where the interest rate is set at a ‘discounted rate’ below the lender’s standard variable rate for the initial period of the mortgage. 
  • If the standard variable rate changes, so will the rate you pay, although the amount of discount you get will stay the same during the term. 
  • When your discount mortgage deal comes to an end, your lender will typically transfer you onto their standard variable rate. 

Tracker mortgage 
  • A tracker mortgage is a type of variable rate mortgage where the interest rate tracks the Bank of England Base Rate or LIBOR (The London Interbank Offered Rate) at a set level above or below it.
  • These can either have an initial period or they could track the rate for the full mortgage term (until you’ve paid your mortgage off). 
  • If the base rate rises, so does the interest rate you pay. 
  • Again, if your tracker mortgage has an initial period, after this, lenders will typically transfer you onto their standard variable rate but may revert to a different rate that also tracks the bank rate.

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