What is a Mortgage? Complete UK Guide
A mortgage is a loan specifically designed to help you buy property. The property itself acts as security for the loan — meaning the lender can repossess it if you stop making payments. Most UK mortgages run for 25 to 35 years, though shorter and longer terms are available.
Types of Mortgage
Choosing the right mortgage type is one of the biggest financial decisions you will make. Here is what is on offer:
| Type | How it works | Best for |
|---|---|---|
| Fixed rate | Interest rate stays the same for an agreed period (usually 2 or 5 years) | Budget certainty |
| Variable (SVR) | The lender sets the rate and can change it at any time | Flexibility (no ERCs) |
| Tracker | Follows the Bank of England base rate plus a set margin | Transparency |
| Discount | A set discount off the lender's SVR for a fixed period | Lower initial payments |
| Offset | Your savings are offset against the mortgage balance to reduce interest | Savers with large balances |
How to Apply for a Mortgage
- Check your credit score. Use Experian, Equifax or TransUnion. Fix any errors before applying.
- Work out your budget. Use our mortgage calculator to see what you can afford.
- Get a Decision in Principle (DIP). A soft credit check that shows sellers you are serious.
- Gather documents. Payslips (3 months), bank statements (3 months), ID, proof of deposit.
- Submit the full application. The lender will do a hard credit check and a property valuation.
- Receive your mortgage offer. Typically valid for 3 to 6 months.
What Lenders Look At
Lenders assess affordability, not just income. They stress-test your finances against higher interest rates and look at:
- Gross income — most lenders offer 4 to 4.5 times your salary
- Monthly outgoings — credit cards, loans, childcare, subscriptions
- Credit history — missed payments, defaults, CCJs
- Deposit size — bigger deposit = better rates
- Employment type — permanent, contract, or self-employed (SA302s required)
LTV (Loan-to-Value) Explained
LTV is the percentage of the property value you need to borrow. A property worth £300,000 with a £30,000 deposit means you need a £270,000 mortgage — that is 90% LTV.
Worked Example — LTV
Property price: £350,000
Deposit: £70,000 (20%)
Mortgage needed: £280,000
LTV: 80% — unlocks significantly better interest rates than 90% or 95% LTV.
The best rates are typically available at 60% LTV or below. Every 5% drop in LTV can shave basis points off your rate.
Mortgage Fees Breakdown
| Fee | Typical cost | Notes |
|---|---|---|
| Arrangement fee | £0 – £2,000 | Can often be added to the loan (but you pay interest on it) |
| Valuation fee | £0 – £1,500 | Many lenders now offer free basic valuations |
| Solicitor / conveyancer | £800 – £1,500 | Legal work for the purchase |
| Broker fee | £0 – £500 | Some brokers are fee-free (paid by the lender) |
| Early repayment charge (ERC) | 1% – 5% of loan | Only applies during the initial deal period |
Remortgaging
When your initial deal ends, you will be moved to your lender's SVR — almost always a higher rate. Remortgaging means switching to a new deal, either with the same lender (a product transfer) or a different one.
Start looking 3 to 6 months before your deal expires. Most mortgage offers last 6 months, so there is no downside to locking in early. If rates drop before completion, you can often switch to the better deal.
Use our mortgage calculator to compare what you are paying now against what a new deal could save you.
Key Takeaways
- A mortgage is a secured loan — the property is collateral.
- Fixed rates give certainty; trackers give transparency.
- The bigger your deposit (lower LTV), the better the rate.
- Budget for fees on top of the deposit — typically £2,000 to £5,000.
- Never sit on the SVR — remortgage before your deal ends.