Buying a home is one of the most significant financial decisions you’ll ever make, and for most people in the UK, it wouldn’t be possible without a mortgage. But what exactly is a mortgage, how does it work, and what should you know before applying for one?
In this guide, we’ll break down everything you need to know about mortgages, from the basics of how they function to the different types available, and what lenders look for when assessing your application.
What Is a Mortgage?
A mortgage is a type of secured loan that allows you to buy a property. The key word here is “secured”: the mortgage is secured against the property itself. That means if you fail to keep up with repayments, the lender has the legal right to repossess and sell your home to recover the outstanding debt.
Mortgages are typically used to buy residential properties, but they can also be used to purchase buy-to-let investments or even remortgage a property you already own to get a better deal or release equity.
How Do Mortgages Work?
When you take out a mortgage, your lender agrees to loan you a percentage of the property’s value; commonly between 75% and 95%, depending on your deposit. You’ll then repay this loan over a set term, usually between 25 to 35 years, although shorter and longer terms are possible.
Every month, you’ll make repayments that go towards:
- The interest on the loan (what the lender charges you for borrowing the money), and
- The capital the amount you originally borrowed
At the end of the term, if you’ve made all your payments as agreed, you’ll own your home outright.
The Role of Your Deposit
The amount you pay upfront, known as a deposit, plays a big role in your mortgage deal. A higher deposit typically means:
- Lower interest rates, because the lender sees you as lower risk
- More mortgage products to choose from
- Lower monthly repayments, since you’re borrowing less
In the UK, most lenders require a minimum of 5% deposit, but putting down 10%, 15% or more can significantly improve your options.
Types of Mortgages in the UK
There are several different mortgage types available, and the best choice depends on your financial situation, your goals, and the level of risk you’re comfortable with.
1. Repayment Mortgages
The most common option. Each monthly payment goes towards both the loan and the interest. By the end of the term, your mortgage will be fully repaid, and you’ll own your home outright.
2. Interest-Only Mortgages
Here, your monthly payments only cover the interest, not the original loan. You must have a separate plan to repay the full amount at the end of the term (such as investments or savings). These are less common for residential buyers and often used for buy-to-let properties.
3. Fixed-Rate Mortgages
Your interest rate stays the same for a set period (usually 2, 3, 5 or 10 years). This provides certainty over your monthly repayments, making it easier to budget.
4. Variable-Rate Mortgages
The interest rate can change, usually following the lender’s standard variable rate (SVR) or the Bank of England base rate. There are sub-types, including:
- Tracker mortgages – follow the base rate plus a set percentage
- Discount mortgages – offer a reduced rate for a limited period
- Standard variable rate (SVR) – often the default after a fixed or tracker deal ends, and usually higher
Mortgage Term: How Long Should It Be?
The term of your mortgage, how long you borrow for, affects both your monthly payments and the total cost over time.
- Longer terms (e.g. 30–35 years) mean lower monthly payments, but you’ll pay more interest overall.
- Shorter terms (e.g. 15–20 years) come with higher monthly payments, but you’ll pay less interest in the long run and own your home sooner.
Choosing the right term involves balancing affordability with long-term financial goals.
How Much Can You Borrow?
Lenders in the UK typically offer mortgages based on a multiple of your income, often around 4 to 4.5 times your annual salary (or combined salaries, if applying jointly). Some lenders may go higher, especially for applicants with strong credit and low existing debts; however if you’ve had bad credit, lenders may be more hesitant.
They’ll also consider your:
- Monthly outgoings (credit cards, loans, childcare, etc.)
- Employment status and job security
- Credit score and credit history
- Deposit size
Use of a mortgage affordability calculator can help you estimate how much you might be able to borrow before formally applying.
What Do Lenders Look for in a Mortgage Application?
Lenders will assess both your ability to repay and the risk involved. This includes:
- Income – from employment, self-employment, or other sources
- Credit score – to assess how reliably you’ve repaid credit in the past
- Debts and commitments – including other loans, car finance, and credit cards
- Deposit size – larger deposits are seen as less risky
- Property type – unusual or non-standard properties can be harder to mortgage
Being prepared with documentation such as payslips, bank statements, and ID will help speed up the application process.
What Are Mortgage Interest Rates?
Your mortgage interest rate determines how much you’ll pay in addition to repaying the loan itself. Rates vary depending on:
- The type of mortgage (fixed or variable)
- The Loan to Value (LTV) ratio: the size of your loan relative to the property’s value
- The Bank of England base rate
- Your credit score and application strength
Shopping around, using a whole-of-market mortgage broker, or applying for a remortgage when your initial deal ends can help you secure a competitive rate.
What Are the Costs Involved in Getting a Mortgage?
Aside from your monthly repayments, there are several upfront and ongoing costs associated with mortgages:
- Mortgage arrangement fees – sometimes added to your loan
- Valuation fees – your lender assesses the property’s value
- Legal fees – for conveyancing
- Stamp Duty Land Tax (SDLT) – if applicable
- Survey costs – especially if you choose a detailed structural survey
- Broker fees – if using a mortgage broker
Be sure to budget for these to avoid any surprises during the buying process.
What Happens After You Get a Mortgage Offer?
Once your application is approved, your lender will issue a formal mortgage offer, which outlines the terms, interest rate, repayment type, and any conditions.
Your solicitor will receive a copy and can begin preparing for exchange and completion of the purchase. The mortgage funds are only released on completion day, when you officially become the legal owner of the property.
Can You Pay Off Your Mortgage Early?
Yes, most lenders allow overpayments, but they may be subject to limits or early repayment charges (ERCs), especially during fixed-rate periods. Overpaying can reduce the interest you pay and help you become mortgage-free sooner.
Always check the terms of your mortgage agreement or speak to your lender before making lump-sum repayments.
A mortgage is more than just a loan: it’s a long-term financial commitment that underpins your ability to buy a home. Understanding how mortgages work, what affects your eligibility, and the different types available can empower you to make informed decisions and avoid costly mistakes.
Whether you’re a first-time buyer, moving home, or remortgaging, working with a qualified mortgage adviser can help you navigate the options, secure the best deal for your circumstances, and feel confident in one of life’s biggest financial decisions.
