How Mortgages Work
A mortgage is a loan secured against a property that you repay over a long period, typically 25-35 years. You'll need a deposit, usually at least 5-10% of the property price, though larger deposits secure better interest rates. The loan-to-value (LTV) ratio is the percentage of the property's value you're borrowing, so a 10% deposit means a 90% LTV mortgage. Your monthly repayments cover both the interest charged and a portion of the capital borrowed.
Types of Mortgage Deals
Fixed rate mortgages lock in your interest rate for a set period (typically 2 or 5 years), giving you payment certainty. Variable rate mortgages can go up or down, with tracker mortgages following the Bank of England base rate plus a set margin. Standard variable rates (SVRs) are the lender's default rate and are usually the most expensive option. Most borrowers remortgage to a new deal before their fixed or tracker period ends to avoid moving to the SVR.
Getting Mortgage-Ready
Before applying, check your credit report and address any issues. Lenders will assess your income, outgoings, and existing debts to determine how much you can borrow, typically around 4-4.5 times your annual salary. Save as large a deposit as you can, as this opens up better rates and lower monthly payments. Get a mortgage agreement in principle before house hunting, as estate agents and sellers take you more seriously with one. Consider speaking to a mortgage broker who can search the whole market and access deals not available directly.