A mortgage is a loan secured against a property. You borrow money from a lender (usually a bank or building society), buy the property, and pay the loan back over a set period — typically 25 to 35 years. If you can't keep up with payments, the lender can repossess the property. That's the fundamental deal.
How much can you borrow?
Lenders typically offer between 4 and 4.5 times your annual income, though some stretch to 5 or 5.5 times for higher earners or certain professions. A couple earning £60,000 combined might borrow up to £270,000. But what you can borrow and what you should borrow are different things — lenders also stress-test your ability to cope if interest rates rise.
Beyond the income multiple, lenders look at your outgoings: existing debts, childcare costs, regular commitments. They'll examine your bank statements for the last three to six months. If your spending suggests you'd struggle with mortgage payments, they'll adjust the offer downward or decline it entirely.
The deposit
You need a deposit — the portion of the property price you pay upfront. The minimum is typically 5% of the purchase price, though 10% or more gives you access to better interest rates. This is expressed as a loan-to-value (LTV) ratio: a 10% deposit means a 90% LTV mortgage.
The bigger your deposit, the lower your LTV, and the better rates you'll get. There's a noticeable rate improvement at each 5% step down — 95%, 90%, 85%, 80%, 75%. If you can stretch to a 75% LTV, you'll access the most competitive deals on the market.
Repayment vs interest-only
With a repayment mortgage, your monthly payment covers both interest and a portion of the original loan. By the end of the term, you've paid everything off and own the property outright. Most residential mortgages are repayment.
With an interest-only mortgage, you only pay the interest each month. The original loan amount doesn't reduce, so at the end of the term you still owe the full balance. These are now rare for residential properties — lenders insist on a credible repayment plan (investments, savings, sale of another property). They're more common for buy-to-let.
Fixed, variable, and tracker rates
Mortgage interest rates come in several flavours:
- Fixed rate — your rate is locked for a set period (usually 2 or 5 years). Payments stay the same regardless of what happens to interest rates. Popular because they provide certainty.
- Variable rate (SVR) — the lender's standard variable rate, which they can change at any time. Usually more expensive. You'll often end up on the SVR when a fixed deal expires if you don't remortgage.
- Tracker — follows the Bank of England base rate plus a fixed margin. If the base rate is 4.5% and your margin is 1%, your rate is 5.5%. Goes up and down with the base rate.
The application process
The typical journey from first enquiry to completion takes 8 to 12 weeks:
- Get a mortgage in principle (also called a decision in principle) — a preliminary assessment of what you can borrow
- Find a property and have your offer accepted
- Submit a full mortgage application with supporting documents
- The lender arranges a property valuation
- If approved, the lender issues a formal mortgage offer
- Your solicitor handles the legal work (conveyancing)
- Completion — the money changes hands and you get the keys
Fees to budget for
Beyond the deposit, budget for arrangement fees (£0-£2,000), valuation fees (£0-£500), solicitor fees (£1,000-£2,000), survey costs (£250-£700), and stamp duty. Some lenders offer fee-free deals with slightly higher interest rates — worth comparing the total cost over the deal period rather than fixating on the headline rate alone.