1. What is a Mortgage?
A mortgage is a loan that is secured against a property. In the UK, when you take out a mortgage to buy a home, the lender places a legal charge against the property. This means that if you fail to make your mortgage repayments, the lender has the right to repossess the property and sell it to recover the money lent to you.
Mortgages in the UK are typically repaid over 25 years, though terms from 5 to 40 years are available. There are two main types of mortgage: repayment and interest-only. With a repayment mortgage, each monthly payment covers both interest and a portion of the original loan (capital), so your balance reduces each month and you will have fully repaid the mortgage by the end of the term. With an interest-only mortgage, you only pay the interest each month — the original loan balance remains constant and must be repaid in full at the end.
2. How UK Mortgages Work
When you apply for a mortgage, the lender assesses your income, expenditure, credit history, and the property you wish to buy. They will lend you a proportion of the property's value — typically up to 95% for residential buyers (meaning you need at least a 5% deposit).
The amount of interest you pay is determined by the interest rate on your mortgage. This rate, combined with the loan amount and term, determines your monthly payment. In the early years of a repayment mortgage, most of your monthly payment goes towards interest. Over time, as the balance decreases, a larger proportion goes towards the capital.
3. Types of Mortgage
Fixed rate: Your interest rate is fixed for a set period — usually 2, 3, 5 or 10 years. This means your monthly payment stays the same regardless of changes to the Bank of England base rate. Fixed rates provide certainty but usually come with early repayment charges if you want to exit early.
Tracker: Your rate tracks the Bank of England base rate plus a set margin (e.g., base rate + 0.5%). When the base rate goes up, so does your payment — and vice versa. Tracker mortgages can be beneficial in a falling rate environment.
Variable/SVR: When your deal ends, you move onto the lender's Standard Variable Rate. SVRs are typically much higher than competitive deals and are the rate you want to avoid by remortgaging before your deal expires.
4. The Mortgage Application Process
Step 1 — Get your finances in order: Check your credit report, reduce existing debts, and save for your deposit. Lenders assess your last 3–6 months of bank statements, so avoid large unexplained transactions.
Step 2 — Agreement in Principle (AIP): An AIP gives you a headline borrowing figure from a lender and shows estate agents you are serious. It involves a soft credit check (not visible to other lenders).
Step 3 — Full application: Once you have an offer accepted on a property, submit your full application with all supporting documents. The lender will carry out a hard credit check and commission a valuation of the property.
Step 4 — Mortgage offer: If approved, the lender issues a formal mortgage offer that is usually valid for 3–6 months.
Step 5 — Exchange and completion: Your solicitor handles the legal process. Contracts are exchanged (legally binding), then the mortgage funds are released on completion day.
Key Mortgage Costs
| Cost | Typical Range | Notes |
|---|---|---|
| Arrangement Fee | £0–£2,000 | Can be added to loan (increases total cost) |
| Valuation Fee | £150–£300 | Some lenders offer free valuations |
| Survey | £300–£1,500 | HomeReport (Scotland), HomeBuyer, Full Structural |
| Conveyancing | £1,000–£2,500 | Legal fees for property transfer |
| Stamp Duty | See calculator | Varies by region, price, and buyer type |
| Broker Fee | £0–£500 | Many brokers earn lender commission instead |
| Buildings Insurance | £150–£400/year | Required by all mortgage lenders |