How Mortgages Work
Fixed vs variable rates, LTV, repayment vs interest-only, and how to get the best deal on your mortgage.
Types of mortgage
Fixed rate: your interest rate stays the same for a set period (usually 2 or 5 years), giving you certainty over payments. Variable/tracker: your rate moves with the Bank of England base rate, so payments can go up or down. Standard variable rate (SVR): the lender's default rate, usually higher — you fall onto this when your deal ends. Most borrowers switch to a new deal before hitting the SVR.
Loan-to-value (LTV)
LTV is how much you borrow as a percentage of the property value. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV means lower rates because the lender has less risk. The biggest rate drops happen at 90%, 85%, 80%, 75%, and 60% LTV thresholds. Even a slightly larger deposit can save you thousands over a mortgage term.
Repayment vs interest-only
Repayment (capital and interest): you pay off the loan gradually, so the mortgage is fully repaid at the end of the term. Interest-only: you only pay interest each month, so the full loan amount is still owed at the end — you need a plan to repay it (savings, investments, selling the property). Most residential mortgages are repayment; interest-only is more common for buy-to-let.
Getting the best deal
Use a whole-of-market mortgage broker — they can access deals not available directly and save you time. Get an agreement in principle before house hunting. When comparing rates, look at the total cost (rate + fees) not just the headline rate. A slightly higher rate with no fees can be cheaper overall than a low rate with a £999 product fee.
The application process
Lenders assess affordability based on income, outgoings, and stress-tested rates (usually 3% above the deal rate). They will want 3 months of bank statements, payslips, and your latest P60 or tax returns if self-employed. The whole process typically takes 2–6 weeks from application to formal offer.
After completion
Your mortgage term is typically 25–35 years. You can usually overpay up to 10% per year without penalty. When your initial deal ends, shop around and remortgage — do not just accept the SVR. Set a reminder 3–4 months before your deal expires to start looking for your next rate.