When you take out a mortgage, the property acts as security. This means the lender has the right to take possession of the home and sell it to recover the money owed if you're unable to keep up with repayments.
Before approving a loan, mortgage providers will assess how much they believe you can realistically afford to borrow based on your income, debts, and spending habits.
What is a deposit?
A deposit is an upfront payment towards the cost of a property, typically expressed as a percentage of the total price.
The larger the deposit, the more competitive the mortgage options available to you, often with lower interest rates.
Common deposit options
0% Deposit mortgages
Some lenders offer mortgages with no deposit, commonly known as guarantor mortgages. These require a close family member or trusted individual to guarantee the loan, often using their own property or savings as security.
This option can help first-time buyers, but it carries risks if you can’t repay, the guarantor becomes legally responsible for covering the loan.
5% Deposits
A deposit of 5% is the minimum required for many government-backed schemes like Help to Buy or Shared ownership. 95% mortgages (with a 5% deposit) typically come with higher interest rates, so it’s essential to understand the total cost over time.
Help to buy: Available for new-build homes, the scheme allows you to borrow part of your deposit from the government.
Shared ownership: You purchase a portion of the property (e.g. 25%–75%) and pay rent on the remainder. Your deposit is only based on the share you’re buying.
10%–20% Deposits
Saving at least 10%–20% puts you in a much stronger position. This is the most common required deposit and it gives access to a much wider range of lenders and lower borrowing rates. The higher your deposit, the less you’ll need to borrow meaning lower monthly payments and less interest paid overall.
Tips to improve your mortgage options, secure better rates and boost chances of approval:
-Save for a larger deposit
-Clear any debts and monitor your credit score
-Register on the electoral register
-Stay in stable employment
-Speak to a mortgage advisor
Choosing a mortgage term
Your mortgage term is the length of time over which you agree to repay the loan.
• A standard term is around 25 years
• Longer terms mean lower monthly payments but more interest over time
• Shorter terms result in higher monthly payments but less interest overall
Choose a term that balances affordability with overall cost.
Types of mortgages explained
Repayment mortgage
You repay both the loan and interest monthly. At the end of the term, the full debt is cleared. This is the most common option for homebuyers.
Fixed-Rate mortgage
Your interest rate remains fixed for a set period (e.g. 2–5 years), so you know exactly what your payments will be. Once the fixed term ends, you'll usually switch to your lender’s Standard variable rate (SVR).
Interest-Only mortgage
Common with buy-to-let properties, you only pay the interest each month. The original loan amount must be repaid in full at the end of the term typically by selling the property.
Variable rate mortgages
Your monthly payments can rise or fall depending on interest rate changes. There are several types:
• Discount mortgages: A discounted rate below the lender’s SVR for an initial period (e.g. 2–3 years). Payments can still fluctuate if the SVR changes.
• Tracker mortgages: Linked to an external rate, typically the Bank of England base rate, plus a set percentage. Your payments vary as the base rate changes.
• Capped-Rate mortgages: Like variable rates, but with a maximum cap on how high the interest can go during the initial period offering some peace of mind.
• Offset mortgages: Link your savings to your mortgage you pay interest only on the difference. For example, if your mortgage is £200,000 and you have £20,000 in savings, you’ll only pay interest on £180,000. You can still access your savings, but the interest calculation adjusts accordingly.
• Standard variable rate (SVR): Most borrowers are automatically moved to this rate once an initial deal ends. The rate is set by the lender and can rise or fall. It’s usually more flexible, with fewer penalties for switching or paying off early.
Do you need mortgage adviser?
A mortgage adviser (or broker) can help you find the right deal based on your financial situation. They may have access to deals that aren’t available to the public and can guide you through the process from start to finish.
Some charge a fee, while others are paid through commission from the lender, so you may not pay anything at all.
What Is remortgaging?
Remortgaging involves switching to a new mortgage deal either with your current lender or a different one often when your current fixed rate ends.
You might choose to remortgage to:
• Get a better interest rate
• Shorten your repayment term
• Release equity (to fund home improvements, repay debts, or invest elsewhere)
Typical mortgage fees
It's important to be aware of the extra costs involved in getting a mortgage. These can include:
• Booking Fee: Charged to secure a specific mortgage deal (approx. £100)
• Arrangement Fee: The lender’s cost of setting up the loan (can be up to £1,000)
• Valuation Fee: Covers the cost of valuing the property (approx. £250)
• Broker Fee: If you use a mortgage adviser, some may charge a flat fee or percentage
