Purchasing a property investment in the United Kingdom is a complex task and requires a lot of analysis. In this article, we’ll feature the various kinds of mortgages in the United Kingdom, the timeline of purchase, upfront & ongoing costs of investment property, taxes, and other legal fees that you should consider. Learn how you can strategize property investment in the UK & make an informed decision!

Repayment mortgages 

This type of mortgage means that you pay back a small part of both the loan and the interest each month until it is paid off at the end of the mortgage term. You will need to set the amount of money that you want to borrow and the number of years that you want to borrow it for (the term of the mortgage). 

Interest only mortgages

With an interest only mortgage, you only pay the interest on the loan monthly and then pay the remaining lump sum at the end of the mortgage term. Compared to a repayment mortgage, your monthly mortgage payments will be lower however it’s important to know that since the actual loan size is not shrinking over time (you’re only paying the interest), in the long run you will end up paying more. 

Fixed rate mortgages 

With a fixed rate mortgage, as the name suggests, you pay a fixed rate of interest for a set term, typically ranging from two to ten years, or sometimes even longer. This can provide valuable peace of mind, as your monthly mortgage payments will be the same every month, regardless of whether or not interest rates increase on the wider market. The downside is that if interest rates fall, you will be locked into your fixed rate deal.

Variable rate mortgages

If you have a variable rate mortgage, this means that your monthly payments can go up or down over time. Most lenders will have a Standard Variable Rate (SVR), which is the rate charged when any fixed, discounted or other type of mortgage deal comes to an end. 

There are usually no Early Repayment Charges (ERCs) if you want to switch away from your lender’s SVR. Here are the following types of variable rate mortgage:

• Tracker mortgages – move directly in line with another interest rate – normally the Bank of England’s base rate. This means that when the base rate goes up, your mortgage rate goes up by the same amount, and when it goes down, your mortgage rate goes down.
• Discounted rate mortgages – This is a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years. It’s worth noting that just because a lender is offering a big discount, it may not make their mortgage the best deal. SVRs differ between lenders, so there might be a better rate out there without a discount.
• Capped rate mortgages – this means your rate moves in line with the lender’s SVR. They have an interest rate cap which means that the rate can’t rise above a certain level.