Mortgages Explained Simply
The biggest loan you’ll ever take out — make sure you understand it
What Is a Mortgage?
A mortgage is a loan specifically for buying property. The property itself acts as security — if you stop paying, the bank can repossess it. Mortgages typically run for 25–35 years, though you’ll usually switch deals every 2–5 years.
LTV (Loan to Value)
LTV is how much you’re borrowing compared to the property value. If you buy a £300,000 house with a £30,000 deposit, your LTV is 90%. Lower LTV = better rates because the bank takes less risk.
| LTV | Deposit (on £300k) | Typical Rate Impact |
|---|---|---|
| 95% | £15,000 | Highest rates |
| 90% | £30,000 | Above average |
| 80% | £60,000 | Average |
| 75% | £75,000 | Good rates |
| 60% | £120,000 | Best rates |
Fixed vs Variable vs Tracker
Fixed rate: Your rate stays the same for a set period (usually 2 or 5 years). Predictable payments. Most popular choice.
Variable (SVR):Your lender’s standard rate, which can change at any time. Usually expensive — it’s what you fall onto if you don’t remortgage.
Tracker: Follows the Bank of England base rate plus a margin (e.g., base rate + 1%). Goes up and down with BoE decisions.
Key Concept
Never sit on your lender’s SVR. When your fixed deal ends, always remortgage or do a product transfer. The SVR is typically 2–3% higher than the best deals, costing you hundreds per month.
Repayment vs Interest-Only
Repayment: Each month you pay interest AND a chunk of the loan. At the end of the term, you own the property outright. This is what most people should choose.
Interest-only: You only pay the interest. The original loan stays the same. You need a plan to pay it off at the end (selling the property, investments, etc.). Popular with landlords but risky for homeowners.
How Much Can You Borrow?
Most lenders cap borrowing at 4–4.5x your gross annual income. So if you earn £50,000, expect to borrow £200,000–£225,000. Joint applicants can combine incomes. Lenders also stress-test at higher rates to make sure you could still afford payments if rates rise.
Mortgage Fees to Budget For
| Fee | Typical Cost |
|---|---|
| Arrangement fee | £0–£2,000 |
| Valuation fee | £0–£500 |
| Solicitor / Conveyancer | £1,000–£2,000 |
| Broker fee | £0–£500 |
| Early repayment charge | 1–5% of balance |
Real-World Example
A lower rate with a £2,000 arrangement fee can be cheaper overall than a fee-free deal at a higher rate — but only if you stay for the full term. Always calculate the total cost over the deal period, not just the monthly payment.
Remortgaging
When your fixed deal ends (usually every 2–5 years), you should shop around. A product transfer stays with your current lender (simpler, no solicitor needed). A remortgagemoves to a new lender (potentially better rate, but more paperwork). Use a broker — they compare the whole market.
Warning
Set a calendar reminder 3–4 months before your deal expires. Most lenders let you lock in a new rate up to 6 months early without penalty. Don’t sleepwalk onto the SVR.