More about mortgages

July, 2022

Most people looking to get on the property ladder will need to take out a mortgage to buy their home. Below is everything you need to know about the mortgage process.

A mortgage is a loan from a bank or building society that you use to buy a property. It is a secured loan, which means the bank has the right to take back and sell the property if you cannot keep up with your monthly repayments.

How do mortgages work?

Once you get a mortgage, you pay back the amount you have borrowed, plus interest, in monthly instalments over a set period. Some mortgages in the UK have longer or shorter terms depending on how much you need to borrow.

The mortgage is secured against your property until you have paid it off in full. This means the lender could repossess your home if you fail to repay it.

In the UK, you can get a mortgage on your own or take out a joint mortgage with one or more people.

What’s the difference between a loan and a mortgage? 

A mortgage is a type of loan that’s secured against your property.

A loan is a financial agreement between two parties. A lender or creditor loans money to the borrower and the borrower agrees to repay this amount, plus interest, in a series of monthly instalments over a set term.

There are several types of loans. Some are secured, such as a mortgage, but others are unsecured. This means you do not need to use an asset as collateral. However, the amounts borrowed with unsecured loans are usually smaller with higher interest rates. 

How do mortgage deposits work?

A deposit is a down payment, and it’s the amount you must put towards the cost of the property you’re buying. The more you can put down as a deposit, the less you’ll need to borrow as a mortgage and the better the mortgage rate you’ll be offered. 

A deposit is a percentage of the property's value, so if you bought a house for £200,000, a 10% deposit would come to £20,000.

Your mortgage provider will lend you the remaining 90% of the purchase price.

This is what is known as the Loan-to-Value (LTV).

It measures the percentage of the property price that you will need to borrow to make the purchase.

In the above example, a 90% LTV mortgage would cover the remaining £180,000, which would be the amount you owe your lender.

A 95% mortgage would mean you would put down a 5% deposit – or £10,000, meaning you would borrow a mortgage of £190,000 in the above example. 

Where can you find a mortgage?

Financial companies offer mortgages; banks and building societies lend most UK mortgages.

There are two ways you can source your mortgage


You can get a mortgage directly from the lender; use our comparison tables to find the right one for you.

Through a broker

Alternatively, you could find a mortgage and get advice from a mortgage broker or independent financial adviser. Some are whole-of-market, which means they can offer mortgages from every lender, and some offer exclusive deals.

What type of mortgage do I need?

There are many different types of mortgages. Some are designed specifically for first-time buyers, others are designed for landlords, and others still are for re-mortgaging only.  

First-time buyer

First-time buyer mortgages can let you buy a home even if you have a small deposit. There are also specific mortgages and schemes aimed at helping first-time buyers purchase their first home. These include:

Help to Buy mortgages

These can improve your chances of buying a home if you have a small deposit with help from the government.

Right to Buy 

This scheme lets you buy your council house at a discounted price, and you can use the discount as part of your deposit.

Guarantor mortgages

These mortgages could help you buy a property with a small deposit if a relative or friend is willing to be named on the mortgage with you and step in if you miss any payments. 

What other mortgages are there? 

Bad credit mortgages are designed for those who have had financial difficulties in the past.

100% mortgages, or mortgages with no deposit, are not offered unless you have a guarantor named on the mortgage too. However, it can still be possible to get on the property ladder if you have a very small deposit saved.

Self-employed mortgages are for those who run their own business or have an income that is hard to prove to lenders.

Commercial mortgages let you buy property for your business or as an investment. 

Mortgages for older borrowers could accept you even if you are over the maximum age specified by most lenders.

Mortgages for specific purposes

Buy to let mortgages let you purchase a property you intend to rent out to someone else.

Second mortgages let you purchase a property other than your main residence, like holiday homes or investment properties. 

Lifetime and equity release mortgages give you cash in return for equity in your home, which is paid back when your home is sold.

Commercial mortgages let you purchase property used by businesses.

Bridging loans also let you borrow using your property as security. These can be used to buy another property, or refurbish a property, or even act as a short-term mortgage or ‘bridge’ while you are waiting for the sale of a property to go ahead.

What are interest only and repayment mortgages?

Most mortgages are repayment mortgages. Your monthly payments will go towards both the interest charged on your mortgage and clearing the outstanding balance. By the end of the mortgage term, you will have paid off the full amount borrowed.

If you get an interest-only mortgage, your monthly repayments only cover the interest owed, so your balance will not go down. At the end of the term, you will need to pay off the full balance. This means you will need to have saved up this amount separately using a repayment vehicle like savings, shares, an ISA or other investment. 

How much does a mortgage cost?

The amount you have to pay each month and in total over the life of your mortgage depends on the deal you get and the cost of the property. 


The interest rate will affect how much you must repay overall and what you pay each month.

It is accrued across the lifetime of the mortgage and is charged as a percentage rate on the amount you owe.

Mortgage fees

  • Product fees are charged for taking out the mortgage
  • Application fees can be charged when you apply for a mortgage, whether you end up taking it out or not
  • Valuation fees may be charged by your lender for working out how much your property is worth
  • Higher lending charges come with some mortgages if you have a small deposit
  • Telegraphic transfer fees are charged when the bank transfers the money they are lending to you (usually to your solicitor)
  • Broker fees can be charged if you take out a mortgage recommended by a broker 

You may also have to pay fees on your old mortgage:

  • Early repayments charges if you pay it off before the end of its term
  • Exit fees are charged on some mortgages when you move to a new lender

What happens if you miss mortgage repayments?

Once you have your mortgage in place, if you miss a monthly repayment you will likely be charged a late payment fee by your lender. On top of this, the missed payment(s) will be reported to the credit reference agencies, and this could have a negative impact on your credit score.

If you think you might miss a monthly repayment, or you already have, it’s crucial that you speak to your lender as soon as possible. They will work with you to find a solution to help you get back on track, whether that’s offering you a payment deferral for a short time, a period of reduced payments or an extension to your mortgage term. 

Whatever you do, don’t ignore this problem, talk to your lender straightaway.

Fixed rate or variable mortgage?

Variable mortgage rates can change at any point, although they usually rise and fall roughly in line with the Bank of England base rate. 

Fixed rate mortgages guarantee that the interest rate will not change for a set period, usually between one and five years.

Tracker mortgages have variable rates that follow the Bank of England base rate exactly. A mortgage set at 2% above the base rate would be 3.25%. The base rate can change so this example is based on the current base rate of 1.25%.

Discount mortgages offer a rate set at around one or two percent less than the lender's standard variable rate. The rate will rise and fall with the lender's standard variable rate, and the discount will last for a set period of a year or more.

How do I get a mortgage?

You will need to:

  • Save a deposit if you are buying your first home. You could use the equity in your property towards the deposit if you own your current home.
  • Find the property you want to buy
  • Find a mortgage through a mortgage broker
  • Make sure you can afford the mortgage you choose
  • Get a mortgage in principle, which will let you know approximately how much you could borrow
  • Put in an offer on the property

If your offer is accepted, take out the mortgage

What is the mortgage process? 

Once you have a mortgage in principle and you’re ready to apply for your mortgage in full, you’ll need to take the steps below:

  • Get your documents ready, including your ID (such as a passport), your proof of address (such as a utility bill), proof of income (at least three months’ payslips and your P60), and proof of deposit. If you’re self-employed, you will usually need the last two to three years’ worth of accounts.
  • Complete your mortgage application. You will need to give your lender details of the property you want to buy, including the price you’ve agreed to pay.
  • Appoint a solicitor to draw up the contracts and handle searches.
  • Get a home survey. This needs to be carried out on the property you’re buying to check its value and condition. You can choose whether you want a more basic condition report, a more comprehensive homebuyer report or a full structural survey to give more detailed information about the property’s condition.
  • Exchange contracts. Once your mortgage is approved and you’re ready to make your purchase, your solicitor will exchange contracts of the sale with the seller’s solicitor. This is when you legally own the property.
  • The next step is completion. This is the date the money is transferred to the seller and you get the keys to your new home.

For more information on the processes of buying your new home, click here.

Will you be accepted for a mortgage?

Mortgage lenders have different standards and requirements. The following factors will affect whether lenders will offer you a mortgage and how much they will be willing to lend to you:

  • The value of the property
  • Your deposit
  • Your age
  • The length of the mortgage term
  • Your credit record
  • Your income

If you are applying solely or jointly

How to manage your new mortgage

Once you move into your new home you will need to start making monthly repayments on your mortgage. If you miss any payments, the amount you owe could increase and your credit record could be damaged. If you fall too far behind your lender could repossess your house.

If you set up a direct debit to pay your mortgage, you will never miss a payment as long as there is enough money in your bank account.

How to keep affording your mortgage

Aim to have six months’ worth of mortgage payments, as well as basic household expenses – such as bills and food - set aside in a savings account that can be accessed in an emergency.

Even having a couple of months’ worth of expenses in savings can give you breathing space in case you lose your job or your circumstances change.

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