What Are the Different Types of Home Loans?

A home loan, also known as a mortgage, is a type of financing used to purchase property. It involves borrowing money from a lender, which is then repaid over time with interest. Housing loans allow individuals and investors to purchase property without paying the full amount upfront.

Understanding the types of mortgage loans available in the UK is important for home buyers, especially overseas buyers navigating the UK housing market.

10 Different Types of Home Loans

The UK offers home financing options for varying needs and circumstances. Let us explore some of the most common types of home loans available:

1. Repayment Mortgages

With a repayment mortgage, borrowers pay the loan principal and interest in monthly instalments. This type of home loan is preferable for buyers who want to fully repay their loan by the end of the term if all instalments are met.

2. Interest-Only Mortgages

Interest-only mortgages require borrowers to pay just the interest each month. The loan principal is repaid in full at the end of the mortgage term, often through the sale of the property or other investments. This loan type is recommended for buy-to-let investors or individuals planning to sell their property for profit. It typically offers lower monthly payments than repayment mortgages. However, the full loan amount will remain outstanding until the end of the term.

3. Buy-to-Let Mortgages

This housing loan is an interest-only mortgage designed for properties intended to be rented out, and typically requires a higher deposit. It is best for investors building rental property portfolios as it allows rental income to offset payments.

4. Fixed-Rate Mortgages

Fixed-rate mortgages have an interest rate that stays the same for a set period, usually 2 to 10 years. This is best for buyers who want predictable monthly payments and stable interest rates during the fixed period.

5. Variable-Rate Mortgages

The interest rate on a variable-rate mortgage can change over time, usually in response to the Bank of England’s base rate or the lender’s standard rate. Home buyers comfortable with fluctuating payments may prefer this type of mortgage as they will benefit when interest rates decrease, but they must be able to shoulder payment increases if rates rise.

6. Capped-Rate Mortgages

A capped-rate mortgage is a variable-rate loan with an upper limit or "cap" on how high the rate can go. This type of housing loan is for buyers seeking protection from significant rate increases due to volatile markets. Rates for capped-rate mortgages may be higher than standard variable mortgages.

7. Tracker Mortgages

A tracker mortgage is a type of variable-rate loan that follows an external interest rate, such as the Bank of England’s base rate, plus a set percentage. This type of loan is for home buyers who want transparent rates linked to the market. 

8. Standard Variable Rate (SVR) Mortgages

An SVR mortgage’s interest rate is set by the lender and can change at their discretion. It is for home buyers looking for flexibility without being tied to a fixed term. While there are usually no early repayment charges, the rates may be unpredictable, causing unexpected changes.

9. Offset Mortgages

Offset mortgages link your savings account to your mortgage. The savings offset the loan amount on which you pay interest, reducing your overall costs. For buyers with substantial savings, this type of loan is beneficial because of its flexibility and reduced interest costs.

10. Flexible Mortgages

Flexible mortgages allow borrowers to overpay, underpay, or even take payment holidays, offering more control over repayments. It is ideal for buyers with fluctuating income or financial circumstances; however, higher interest rates may apply.

Which Types of Home Loans Are Ideal for Overseas Buyers?

For foreign buyers and investors of UK property, especially those from Southeast Asia and the UAE, the following options are most practical:

• Buy-to-Let Mortgages: Ideal for generating rental income and building property portfolios.
• Interest-Only Mortgages: Useful for managing cash flow on rental properties.

How Can Overseas Buyers Get a Housing Loan?

Overseas buyers can access UK housing loans by working with lenders that specialise in catering for non-resident clients. Here is how GOGOPROP simplifies the process:

• Accessible Solutions: We focus on short-term asset-based lending, doing away with the need for UK credit history.
• Fast Approvals: We provide loan decisions in 24 hours, processing within 5 days, and funding in as little as 10 days.
• Flexible Options: We offer loans for newly purchased properties and equity release of owned properties.
• Transparent Rates: We have a standard interest rate and handling fee. We have no hidden fees, so you always know what to expect.
• Efficient Process: Our digital-first approach makes applying for a loan from anywhere convenient. Online transactions streamline the process and you can get updates in real-time. 
• Expert Guidance: Our team provides personalised support throughout the lending process.

Looking for reliable, fast, and flexible home financing options? GOGOPROP is the go-to digital lending solution to achieve your UK property investment goals. Contact us today to explore how we can support your housing loan needs.