Types of Mortgages in the UK: Repayment Methods, Rates and Products for CeMAP

CeMAP® 2 tests mortgage product knowledge in one place: MRT2 LO6, "Understand the structure and features of different types of mortgages", across six assessment criteria, AC6.1 to AC6.6. ASEW AC1.3 to AC1.6 then asks you to choose between those products for a customer in a case study. This guide explains the types of mortgages in the UK in the order the syllabus lists them, with worked numbers for repayment, interest-only and offset. The products and rules are UK-wide; government schemes are not, and we say which nation each one belongs to. For the module overview, see the CeMAP 2 (MORT) hub; for the unit as a whole, the MRT2 unit guide.

Criterion	What MRT2 LO6 lists
AC6.1	Repayment methods: repayment, interest-only, interest-only into retirement
AC6.2	Rate options: standard variable, tracker, fixed, capped (including capped and collared), discounted (including cashback)
AC6.3	Products: flexible, offset, equity release, self-build, foreign currency, new build, buy-to-let, consumer buy-to-let, adverse credit, second charge, bridging
AC6.4	Government-backed incentives, including help-to-buy and right-to-buy
AC6.5	Shared ownership and equity share
AC6.6	Islamic home finance

Source: the CeMAP qualification specification, Appendix 4.

How are UK mortgages classified for CeMAP?

UK mortgages are classified for CeMAP on three separate axes: the repayment method (AC6.1), the interest-rate type (AC6.2) and the product type (AC6.3). Every mortgage has one of each, so a "five-year fixed offset repayment mortgage" combines all three.

Keeping the axes apart is the most useful habit for MRT2. A question that asks "which type of mortgage" may be asking about any of the three, and the wrong options often come from a different axis. "Tracker" is never a repayment method, and "interest-only" is never a rate.

Axis	Question it answers	Main types
Repayment method	How is the capital repaid?	Repayment; interest-only; part-and-part; retirement interest-only
Interest rate	How is the rate set?	SVR; tracker; fixed; capped; capped and collared; discounted
Product	What features or purpose?	Flexible; offset; buy-to-let; equity release; self-build; new build; bridging; second charge

Government schemes (AC6.4 to AC6.5) and Islamic home finance (AC6.6) sit beside these, because they change who owns the property or how the finance is structured. Walbrook (LIBF) publishes no weighting, but in our mocks LO6 is the largest MRT2 topic: 130 of the 395 MRT2 questions, an allocation that is ours, not Walbrook's.

Key fact: A mortgage has one repayment method, one rate type and one or more product features. Questions mix the three to create wrong answers.

What is the difference between a repayment and an interest-only mortgage?

A repayment mortgage clears interest and capital by the end of the term, so nothing is owed. An interest-only mortgage pays only the interest each month, leaving the capital to repay at the end through a credible repayment strategy, as MCOB 11.6.41R requires.

Worked example: repayment vs interest-only

A customer borrows £200,000 over 25 years at 4.5% a year. These are our own illustrative numbers.

1. Interest-only: £200,000 × 4.5% ÷ 12 = £750 a month.
2. Repayment: using the standard annuity formula with a monthly rate of 0.375% over 300 months, the payment is about £1,112 a month.
3. Total paid on repayment: £1,112 × 300 ≈ £333,500, of which about £133,500 is interest.
4. Total paid on interest-only: £750 × 300 = £225,000 of interest, and £200,000 is still owed at the end.

The interest-only payment is £362 a month lower, but the customer pays about £91,500 more interest over the term and still owes the capital. That is the trade-off CeMAP tests: lower payments now against higher total cost and capital risk.

Part-and-part and interest-only into retirement

A part-and-part mortgage splits the loan. If £120,000 of the £200,000 is on repayment and £80,000 on interest-only, the payment is about £667 + £300 = £967 a month, and £80,000 remains at the end.

Under MCOB 11.6, interest-only lending needs evidence of a clearly understood and credible repayment strategy, such as regular saving, the sale of another property, or capital from irregular income like bonuses. Expected house-price growth is not acceptable (MCOB 11.6.46E). AC6.1 also lists interest-only into retirement, which today usually means a retirement interest-only (RIO) mortgage; our equity release guide compares it with lifetime mortgages.

Exam tip: "Lower monthly payment" and "lower total cost" are different claims. Interest-only gives the first, never the second.

Which interest-rate types must you know?

MRT2 AC6.2 lists five interest-rate types you must know: standard variable, tracker, fixed, capped (including capped and collared) and discounted (including cashback). Each decides who carries the risk of rate changes, the lender or the borrower, for how long.

Rate type	How it is set	Risk to the borrower	Typical exit terms
Standard variable (SVR)	Lender's own rate, changed at its discretion	Rises at the lender's choice	Usually no early repayment charge
Tracker	Bank Rate (or another index) plus a set margin	Moves with Bank Rate, both ways	May have a charge in the initial period
Fixed	Set for an agreed period	None during the fix; payment shock at the end	Early repayment charge during the fix
Capped	Variable, but cannot exceed a ceiling	Rises only up to the cap	Charge during the cap period
Capped and collared	Variable between a ceiling and a floor	Limited both ways	Charge during the period
Discounted	A set discount off the SVR	Moves with the SVR	Charge during the discount period

Three quick calculations

• Tracker. Bank Rate is 3.75%, unchanged since 18 December 2025, according to the Bank of England. A tracker at Bank Rate + 1.25% charges 5.00%. If Bank Rate falls to 3.50%, the rate falls to 4.75%.
• Discounted. A lender's SVR of 7.00% with a 2% discount gives a pay rate of 5.00%. If the lender raises its SVR to 7.50%, the pay rate rises to 5.50%, even though Bank Rate has not moved.
• Capped and collared. With a cap of 6.00% and a collar of 3.50%, the rate follows the index between those limits. If the index rate would be 3.00%, the borrower still pays 3.50%.

Cashback is an incentive, not a rate: a cash sum on completion, often repayable if the mortgage is redeemed early. Fees can be added to a loan, which raises the balance and the interest charged on it.

Key fact: A discounted rate follows the lender's SVR, not Bank Rate. A tracker follows Bank Rate by contract.

How do flexible and offset mortgages work?

A flexible mortgage lets the borrower overpay, underpay, take payment holidays or draw back earlier overpayments, within limits the lender sets. An offset mortgage links the loan to savings, so interest is charged only on the balance minus the savings. Both are MRT2 AC6.3 products.

Flexible features are agreed in the contract. A lender may allow overpayments of up to 10% a year without a charge, or let a borrower who has overpaid take a payment holiday later. Interest on a flexible mortgage is usually calculated daily, so an overpayment reduces interest at once.

Worked example: an offset saving

A borrower has an £180,000 mortgage at 4.5% and £20,000 in a linked offset savings account.

1. Interest is charged on £180,000 − £20,000 = £160,000.
2. Interest saved in the first year: £20,000 × 4.5% = about £900.
3. The savings earn no interest, so there is no tax on the saving. For a higher-rate taxpayer who has used their personal savings allowance, a taxable account would need to pay 4.5% ÷ (1 − 0.40) = 7.5% gross to match it.

The borrower can choose to keep the monthly payment the same, so the extra saving reduces the capital and shortens the term, or to lower the payment. Some offset mortgages link the savings of family members, a feature lenders sometimes use to help first-time buyers. Repeat this example with fresh numbers on our CeMAP calculations page.

Exam tip: Offset savings earn no interest. The benefit is the interest not charged on the mortgage, which is why it suits higher-rate taxpayers best.

Which specialist mortgage products are in the syllabus?

MRT2 AC6.3 lists eleven products, including flexible and offset. The specialist ones are equity release, self-build, foreign currency, new build, buy-to-let, consumer buy-to-let, adverse credit, second charge lending and bridging finance. ASEW AC2.1 to AC2.6 tests several in case studies.

• Self-build. The lender releases funds in stages as the build progresses, often after each stage is inspected. Borrowers need cash for the early stages and somewhere to live during the build.
• Foreign currency. A loan in a currency other than the one the borrower earns in or holds assets in. The risk is the exchange rate: the sterling cost of the debt can rise even if the interest rate does not.
• New build. Lenders often set lower maximum loan-to-value limits on new-build homes, especially flats, and expect a structural warranty under a new-home guarantee scheme (MRT1 AC9.4).
• Adverse credit (sub-prime). For borrowers with defaults, county court judgments or past arrears. Rates are higher and maximum loan to value is lower, reflecting the lender's risk.
• Buy-to-let and consumer buy-to-let. Lending to landlords, assessed mainly on rent. See our buy-to-let mortgages guide.
• Equity release. Lifetime mortgages and home reversion plans for older homeowners. See our equity release guide.
• Second charge and bridging. A second charge loan is secured behind the first mortgage and has been regulated under MCOB since 21 March 2016. Bridging finance is short-term secured lending, such as buying before a sale completes. Both are covered further in the MRT2 unit guide.

Each specialist product changes the risk, so it changes the loan to value a lender will accept. Practise them together with the MRT2 products drill.

Key fact: The risk in a foreign currency mortgage is exchange-rate risk, which is separate from interest-rate risk.

How do guarantor and joint borrower sole proprietor mortgages work?

A guarantor mortgage adds a third party, often a parent, who promises to repay if the borrower cannot. A joint borrower sole proprietor (JBSP) mortgage adds a second borrower, but only the occupier owns the property. Both help where one income is too low.

The syllabus covers guarantors in MRT1 AC7.1 ("guarantors and surety") and ASEW AC6.4 ("legal obligations and guarantors"). JBSP is not named in the specification; it is a product a lender may offer, so treat it as application of ASEW AC1.4, "the range of mortgage products available to customers".

Feature	Guarantor mortgage	Joint borrower sole proprietor
Who is liable	Borrower first; guarantor if the borrower defaults	Both borrowers, jointly and severally, from day one
Who owns the home	Borrower	Occupier only
Affordability	Lender must assess the guarantor too (MCOB 11.6.2R)	Lender assesses both incomes
Common user	First-time buyer with a parent's support	First-time buyer with a parent on the loan but not the deeds

Two consequences recur in questions. Because a JBSP parent is not an owner, they usually avoid the SDLT higher rates for additional dwellings, which apply to buyers who own another home. And any guarantor or JBSP borrower should take independent legal advice, because they take on liability without owning the property.

Exam tip: MCOB 11.6.2R requires the lender to assess whether the customer and any guarantor can pay. A guarantor is not a substitute for affordability.

What government schemes help home buyers?

The government schemes in the syllabus are Help to Buy and Right to Buy (AC6.4), and shared ownership and equity share (AC6.5). As of 30 October 2026 the Help to Buy equity loan in England is closed, and Right to Buy survives only in England.

Scheme	Nation	Status as of 30 October 2026
Help to Buy ISA	UK	Closed to new savers on 30 November 2019. Existing savers get a 25% bonus, up to £3,000, and must claim by 1 December 2030
Help to Buy equity loan	England	Closed to new applications; Wales had its own scheme
Lifetime ISA	UK	£4,000 a year with a 25% bonus, opened at 18 to 39, for a first home up to £450,000
2025 Mortgage Guarantee Scheme	UK	Permanent since July 2025, for 91% to 95% LTV repayment mortgages
Right to Buy	England	Open, with discounts cut from 21 November 2024; abolished in Scotland (1 August 2016) and Wales (26 January 2019)
Shared ownership	England	Open; initial share 10% to 75%

Sources: gov.uk Help to Buy ISA, gov.uk Right to Buy and gov.uk shared ownership.

Right to Buy. A council tenant in England with at least three years as a public-sector tenant can buy their home at a discount. Since 21 November 2024 the maximum discount is the lower of 70% of the value and a regional cap, from £16,000 in London to £38,000 in the South East. A mortgage for a statutory right to buy cannot be sold execution-only (MCOB 4.8A.7R).

Shared ownership. The buyer purchases a share of the home, usually from 25% to 75% and from 10% on some homes, with a mortgage, and pays rent on the rest. They can buy further shares later, which is called staircasing. Equity share mortgages work differently: the buyer owns the whole home but part of the price is funded by a second, equity loan.

Budget 2026 announced a "Your First Home" equity loan scheme for England. It is an announcement only, not yet in force, so do not treat it as a current scheme in an exam answer.

Key fact: Right to Buy was abolished in Scotland on 1 August 2016 and in Wales on 26 January 2019. Questions set outside England test that.

What is Islamic home finance?

Islamic home finance is a way of buying a home without paying interest, which Sharia law prohibits. MRT2 AC6.6 covers it. In the UK most products are home purchase plans, regulated by the FCA, and structured as ijara, diminishing musharaka or murabaha.

• Ijara (lease). The provider buys the property and leases it to the customer, who pays rent plus regular payments towards buying it. Ownership passes when the price has been paid.
• Diminishing musharaka (partnership). Customer and provider buy the property jointly. The customer buys the provider's share bit by bit and pays rent on the share they do not yet own, so the rent falls over time. In the UK this is often combined with ijara.
• Murabaha (cost-plus sale). The provider buys the property and sells it to the customer at a higher, fixed price, payable in instalments. The profit is agreed up front rather than charged as interest.

Home purchase plans fall under MCOB, and two chapter titles say so: MCOB 11 covers "responsible financing of home purchase plans" and MCOB 13 covers "regulated mortgage contracts and home purchase plans". The customer therefore gets the same affordability and payment-difficulty protection as a mortgage borrower.

Exam tip: In a home purchase plan the provider owns the property, or a share of it, for the term. That is the key difference from a mortgage, where the borrower owns the property and the lender holds a charge.

Your MRT2 product study plan

Your MRT2 product study plan covers LO6 in about 12 hours over two weeks: the three classification axes and the rate table in week 1, then specialist products, schemes and Islamic finance in week 2, ending with a timed 40-question MRT2 mock.

Step	Focus	Practice
1	Classify 20 product descriptions by axis	Free MRT2 quick practice
2	Redo the repayment, part-and-part and offset examples with new numbers	CeMAP calculations
3	Specialist products, schemes, home purchase plans	MRT2 products drill
4	Timed check	Free MRT2 mock 1

Start with the free MRT2 diagnostic, 20 questions in 30 minutes. The printable MRT2 worksheet with an answer key suits revision away from a screen. Product choice always meets mortgage affordability in CeMAP 3, so read that guide next. Our free study notes summarise each product in a line.

Mocks 2 to 10 and the topic drills are part of Pro: £6.99 a week, £11.99 a month or £22.99 for three months, for all five units. Our readiness rule is three mocks in a row at 85% or more, with every topic at 80% or more. It is a guide, and there is no pass guarantee.