A Beginner's Guide to Mortgages: Everything You Need to Know
Published 14th of February 2016·Updated 5 April 2026
Reviewed by: Reviewed for accuracy April 2026
A mortgage is a loan secured against the property you buy. Most first-time buyers need one because house prices are far beyond what most people can save outright. Understanding how mortgages work before you apply can save you thousands of pounds over the life of the loan.
Short Summary
A mortgage is repaid monthly over a set term, typically 25 years, with interest charged on the outstanding balance. Most lenders require a deposit of at least 5 to 10 per cent of the property's value, though larger deposits unlock better rates.
There are two main rate types: fixed, where your rate is locked for a set period, and variable (tracker), where your rate moves with the Bank of England base rate.
You repay the loan either through capital repayment, where you pay down the debt and interest each month, or interest-only, where you pay just the interest and must clear the original loan separately at the end.
Arrangement fees, valuation fees and legal costs add to the upfront cost of getting a mortgage. Always factor these in when comparing deals.
What is a mortgage and how does it work?
A mortgage is a loan secured against the home you buy. If you stop making repayments, the lender has the legal right to repossess your property and sell it to recover the debt. Lenders assess how much they will lend based on your income, outgoings, credit history and deposit size.
Most lenders will lend between four and four-and-a-half times your annual salary, though some specialist lenders go higher. You can get a general estimate using a mortgage calculator on lenders' websites, or by speaking to a mortgage broker who can check the whole market on your behalf.
Mortgages are typically repaid over 25 years, though terms of 30 or 35 years are now common, especially among younger buyers in high-cost areas. A longer term reduces monthly payments but increases the total interest you pay.
How much deposit do I need for a mortgage?
Most high-street lenders including Halifax, Nationwide and Barclays require a minimum deposit of 5 per cent of the property's value. A 10 per cent deposit opens up a wider range of deals, and a 25 per cent deposit typically gives you access to the most competitive rates.
The deposit size is expressed as loan-to-value (LTV). A 90% LTV mortgage means you are borrowing 90 per cent of the property's value. The lower your LTV, the lower the risk for the lender, which is why rates improve as your deposit grows.
The government's Mortgage Guarantee Scheme has supported 95% LTV mortgages for eligible buyers. Check GOV.UK for the current status of this and other first-time buyer support schemes.
What is the difference between a fixed rate and a variable rate mortgage?
A fixed rate mortgage locks your interest rate for a set period, usually two, three or five years. Your monthly repayment stays the same regardless of what the Bank of England base rate does. This makes budgeting straightforward and protects you if rates rise.
A variable rate mortgage (also called a tracker mortgage) is set at a margin above the Bank of England base rate and moves up or down when the base rate changes. For example, a tracker at base rate plus 1.5% would charge 6.5% if the base rate is 5%. Variable rates can be cheaper when the base rate is low but carry the risk of rising repayments.
| Mortgage type | Rate certainty | Good if you... |
|---|---|---|
| Fixed rate (2-year) | High | Prefer certainty; may remortgage soon |
| Fixed rate (5-year) | High | Want longer stability; plan to stay put |
| Tracker (variable) | Low | Expect rates to fall; can absorb increases |
| Standard variable rate (SVR) | Low | Reverting after a deal ends (usually the most expensive option) |
What are the two ways to repay a mortgage?
Capital repayment means your monthly payment covers both the interest charged and a portion of the original loan. By the end of the term, you own your home outright. This is the standard repayment method and is required by most residential mortgage lenders.
Interest-only means you pay only the interest each month. Your monthly payment is lower, but the original loan does not reduce. You must have a separate plan to repay the full loan at the end of the term. Most high-street lenders restrict interest-only mortgages to buy-to-let landlords or borrowers with very large deposits.
If you are in financial difficulty, some lenders will temporarily switch you to interest-only for a short period to reduce your payments. Contact your lender as early as possible if you are struggling.
What fees do I need to pay when getting a mortgage?
Arrangement fees vary by lender and deal. Some lenders charge no fee at all; others charge between £500 and £1,500. You can usually add the fee to the mortgage, but doing so means you pay interest on it for the full term.
| Fee type | Typical cost | Notes |
|---|---|---|
| Arrangement fee | £0 to £1,500 | Often added to mortgage; cheaper to pay upfront |
| Valuation fee | £150 to £500 | Lender's check on the property value |
| Conveyancing (solicitor) | £800 to £1,500 | Legal transfer of ownership |
| Mortgage broker fee | £0 to £500 | Many brokers are free; check before engaging |
| Stamp Duty Land Tax | Varies | 0% on first £250,000 for most buyers; first-time buyer relief applies |
Always compare deals by looking at the total cost over the deal period, including fees, not just the headline interest rate.
Can I get a mortgage as a first-time buyer?
Yes. First-time buyers are eligible for the same mainstream mortgage products as existing homeowners, and some lenders offer specific first-time buyer deals. You will typically need to provide three months of payslips, three months of bank statements, proof of your deposit and photo ID.
Getting a mortgage in principle before you start house hunting is strongly recommended. This confirms how much a lender is willing to offer and shows sellers and estate agents that you are a serious buyer. A mortgage in principle is usually valid for 60 to 90 days and does not commit you to that lender.
A fee-free mortgage broker such as L&C Mortgages or Habito can search deals across the whole market and help you find the most suitable product for your situation.
FAQ
What is a mortgage in principle?
A mortgage in principle (also called an agreement in principle or decision in principle) is a statement from a lender confirming how much they would be willing to lend you, subject to a full application. It involves a soft or hard credit check depending on the lender. Most sellers and estate agents will ask to see one before accepting an offer.
How long does a mortgage application take?
From submitting a full application to receiving a formal mortgage offer typically takes two to six weeks. Remortgage applications with the same lender can be faster. Conveyancing and legal work after the offer is issued takes a further six to twelve weeks on average.
What is the Bank of England base rate and how does it affect my mortgage?
The Bank of England Monetary Policy Committee sets the base rate, which is the interest rate at which it lends to commercial banks. Lenders use the base rate as a reference point for their own mortgage rates. Tracker mortgages move directly with the base rate; fixed rate mortgages are priced partly based on where the market expects the base rate to go.
What is negative equity?
Negative equity occurs when the outstanding balance on your mortgage is higher than the current market value of your property. This can happen if house prices fall significantly after you buy. It is most common for buyers who purchased with a small deposit. Negative equity makes it harder to remortgage or sell.
Can I pay off my mortgage early?
Yes, though most fixed rate and tracker mortgages include an early repayment charge (ERC) if you overpay beyond a set limit or exit the deal before the end of the fixed period. ERCs typically range from 1 to 5 per cent of the outstanding balance. Once the fixed period ends and you are on the lender's standard variable rate, you can usually repay in full without penalty.
What happens at the end of my mortgage deal? When your fixed or tracker deal ends, your mortgage automatically moves to the lender's standard variable rate (SVR), which is almost always higher than the deal rate. You should start looking for a new deal around three to six months before your current deal expires to avoid paying over the odds.