Everything You Need
to Know About Mortgage

A mortgage is a loan that lets you buy a property, such as a house or flat. The property is security for the loan, and you make regular payments, usually monthly, to the lender over an agreed term.

With a repayment mortgage you gradually repay the amount borrowed plus interest, so you own the property outright at the end of the term. If you don’t keep up repayments, the lender can repossess the property to recover what you owe.

In the UK, deposits typically range from 5% to 20% of the property’s value, depending on the lender and the mortgage product. Many lenders offer mortgages with a 5% deposit (95% loan to value).

Generally, the larger your deposit, the better the terms. A bigger deposit means a lower loan-to-value (LTV), which often gives you access to lower interest rates and smaller monthly repayments. For example, on a £200,000 property, a 5% deposit is £10,000 and a 20% deposit is £40,000.

Schemes such as Shared Ownership can help you buy with a smaller deposit. The Help to Buy equity loan is now closed to new applications in England.

It depends on the lender and the type of property. Some lenders accept a 5% deposit on new build houses, while many ask for a larger deposit, often 15% or more, on new build flats.

Lenders also look at the development itself, so it’s worth checking which lenders will lend on the property you want before you reserve it.

The two main types are fixed-rate and variable-rate mortgages.

With a fixed-rate mortgage, your interest rate stays the same for a set period, typically 2 to 5 years, though longer fixes are available. Your monthly payments don’t change during that time, whatever happens to the Bank of England base rate or the lender’s standard variable rate (SVR).

With a variable-rate mortgage, your rate and payments can go up or down. A tracker mortgage follows the Bank of England base rate plus a set margin: for example, if the base rate is 4% and your tracker is base rate plus 1%, you pay 5%. A standard variable rate is set by the lender, which can change it at any time, and is usually higher than fixed and tracker rates. Some variable-rate mortgages also let you overpay without a charge.

Some borrowers choose a shorter term, such as 15 or 20 years. Monthly repayments are higher, but you repay the mortgage sooner and pay less interest overall.

Others choose a longer term, such as 35 or 40 years. Monthly repayments are lower, but you’ll pay more interest over the life of the mortgage. The right term depends on your budget, your age, your financial goals and your long-term plans.

Amortisation is the gradual repayment of a mortgage through regular instalments. Each repayment covers that month’s interest and reduces the amount you owe, so over time more of each payment goes towards the balance.

Finding the right mortgage can be complex, so it’s worth speaking to a qualified mortgage adviser. We can look at your circumstances and help you find mortgage options that suit your needs.

A mortgage is a big financial commitment, so make sure you’re comfortable with the terms and the repayments before you decide.

It depends on your circumstances, how comfortable you are with your payments changing, and what you expect to happen to interest rates.

A fixed rate gives you certainty, because your payments stay the same for the fixed period. A variable or tracker rate could cost less if rates fall, but your payments will rise if rates go up. A mortgage adviser can help you weigh up which suits you.

Several things affect the rate you’re offered. The Bank of England base rate, set by its Monetary Policy Committee, is a benchmark for many mortgage rates. Lenders also add their own margin to cover their costs and risk.

Your own circumstances matter too. Lenders look at your credit history and your loan-to-value: for example, a £40,000 deposit on a £200,000 property means you borrow £160,000, an 80% LTV, and a lower LTV usually means a lower rate. The type of mortgage and the length of the deal also make a difference, and wider economic conditions, such as inflation, can affect what lenders charge.

Each lender sets its own rates, so it’s worth comparing deals.

Arrangement fees, also called product or booking fees, are charged by the lender for setting up your mortgage. They’re separate from the interest rate and vary a lot between lenders and products. Some mortgages have no arrangement fee at all.

Some fees are paid when you apply, and booking fees are often non-refundable if you don’t go ahead. Many lenders let you add the product fee to your loan, but you’ll then pay interest on it.

A mortgage with a lower rate can have a higher fee, and the other way round, so compare the total cost over the deal period, not just the rate.

Lenders change their rates regularly, and the rate you’re offered depends on your deposit, the type of deal and your circumstances.

You can see the latest rates from our weekly rate search on our Live Rate Tracker, or speak to us for rates based on your own situation.

Yes. Many mortgages let you overpay, either by paying more each month or by making a lump-sum payment. Overpaying reduces your balance, which can cut the interest you pay, shorten your mortgage term, or both, depending on your lender’s terms.

Many lenders let you overpay up to 10% a year during your deal without a charge. If you overpay more than your allowance, you may have to pay an early repayment charge. Check your mortgage offer or ask your lender before you overpay.

If you overpay more than your lender allows, or repay your mortgage in full during your deal, you may have to pay an early repayment charge (ERC). ERCs are often between 1% and 5% of the amount repaid, and many reduce the longer you’ve had the deal.

ERCs usually apply during an initial fixed or discounted period. Some tracker deals have no ERCs, and your lender’s standard variable rate rarely has them. Your mortgage offer sets out the exact charges.

Contact your lender straight away and explain what’s happened. Lenders may be able to agree a plan to help you catch up.

A missed payment can lead to late payment charges, and it can be reported to credit reference agencies. Late or missed payments can stay on your credit file for up to six years and make it harder to borrow in future. If arrears keep building up, your lender could ultimately take steps to repossess your home.

If you’re struggling, speak to your lender early and get free debt advice. The sooner you act, the more options you’re likely to have.

Lenders look at your income, your regular outgoings, your credit history and your existing commitments to decide how much they’ll lend. As a rough guide, many lenders lend up to around 4 to 4.5 times your annual income, and some offer more to higher earners or to people with a bigger deposit.

Your deposit sets your loan-to-value (LTV): the amount you borrow divided by the property’s value. For example, a £50,000 deposit on a £250,000 property means borrowing £200,000, an 80% LTV.

Our calculator can give you an estimate, and an adviser can confirm what lenders would offer you.

Yes. Moving your mortgage to a new lender is called remortgaging. Many people do it when their fixed or discounted deal ends, because they usually move onto the lender’s standard variable rate, which may cost more.

Remortgaging could get you a better rate or features that suit you better. There can be costs, such as an arrangement fee, valuation and legal fees, and an exit fee from your current lender. If you leave before your current deal ends, you may also have to pay an early repayment charge.

Start looking well before your deal ends, so you have time to compare offers.

Mortgage payment protection insurance (MPPI) can help cover your mortgage payments if you can’t work because of an accident, sickness or unemployment, depending on the cover you choose. It usually pays for a limited time, often 12 or 24 months, after a waiting period.

It isn’t compulsory. Cost depends on things like your age, health and how much cover you need, and policies have exclusions and conditions. Before buying, check what your existing cover, such as life insurance, critical illness cover or income protection, already provides.

Relevant Life Insurance is life cover that a limited company takes out for a director or employee. It’s available to directors, contractors working through their own limited company, and employees.

Sole traders and members of a Limited Liability Partnership (LLP) can’t be covered, because they aren’t employees of the business.

It can be. Your company pays the premiums, which are usually treated as an allowable business expense as long as they meet HMRC’s ‘wholly and exclusively’ rules. When the company pays the premiums in full, they aren’t usually treated as a benefit in kind.

The rules depend on how the policy is set up, so check with your accountant.

A contractor mortgage is a mortgage for people who work on contracts and may not have traditional payslips or a regular salary. Instead of looking only at your accounts, some lenders work out your income from your contract, such as your day rate or hourly rate.

Contractor mortgages can be available to people who work through their own limited company, through an umbrella company, or as sole traders.

Criteria vary by lender. Some ask for at least 6 months’ track record, others for 12 months’ contracting history, and some also want to see around two years’ experience in the same line of work.

The main benefit is how your income is assessed. Some lenders base it on your contract rate rather than your accounts, which can be more straightforward if you’re newer to contracting or pay yourself through a mix of salary and dividends.

You’ll have access to a range of mortgage products, and it can help you buy a home without waiting for several years of accounts.

It varies by lender. Some annualise your contract rate, for example your day rate multiplied by 5 days and 46 weeks. Others look at your earnings over the previous year or two.

Lenders may also take into account gaps between contracts, how long is left on your current contract, and costs such as umbrella company deductions. An experienced adviser can help you find a lender whose approach suits how you’re paid.

Yes. Contractors buying their first home can apply for a contractor mortgage. Lenders will look at your contracting history and may have specific criteria for first-time buyers.

You’ll usually need proof of identity and address, your current contract, evidence of your work history (such as previous contracts or a CV), and recent bank statements. Some lenders also ask for payslips or invoices if you work through an umbrella company.

Your adviser can give you a full list for the lenders you’re applying to.

Yes, contracting is a form of self-employment, so contractors who work through their own limited company or as sole traders can apply.

Some lenders assess contractors on their contract rate, while others assess self-employed income from accounts or tax calculations (SA302s). Which approach is better depends on how you work and how long you’ve been trading.

Keep a steady contracting history, manage your money carefully, and make sure all your documents are accurate and up to date. Working with an experienced mortgage adviser can also help you apply to lenders that suit your situation.

Yes. Many contractors remortgage to get a better rate or to release equity. The process is similar to getting a new mortgage, and lenders will look at your contracting income in the same way.

Get in touch with us. Our team can look at your circumstances, help you find suitable lenders and guide you through the application.