How UK mortgages work

What is a mortgage?

A mortgage is a loan secured against a property. You borrow money from a lender to buy a home, and the property acts as security — meaning the lender can repossess it if you stop making payments. You repay the loan, plus interest, over an agreed period known as the term.

The key numbers

Every mortgage comes down to four figures that determine your monthly payment:

• Loan amount — the property price minus your deposit.
• Interest rate — the annual cost of borrowing, shown as a percentage.
• Term — how many years you repay over, commonly 25 to 35.
• Repayment type — repayment or interest-only.

Loan-to-value (LTV)

LTV is the size of your loan as a percentage of the property value. If you buy a £300,000 home with a £30,000 deposit, you borrow £270,000 — an LTV of 90%. LTV matters because lenders offer lower interest rates at lower LTVs. A larger deposit usually means a cheaper rate.

Repayment vs interest-only

With a repayment mortgage, each monthly payment covers both interest and a portion of the loan itself. By the end of the term, the balance reaches zero and you own the home outright. Around 70% to 74% of UK mortgages are repayment loans.

With an interest-only mortgage, you pay only the interest each month, and the full loan amount remains due at the end of the term. Monthly payments are lower, but you must have a separate plan to repay the capital. These are more common for buy-to-let.

How the monthly payment is calculated

Repayment mortgages use a standard amortisation formula. Early in the term, most of each payment goes towards interest, with only a little reducing the balance. As the balance falls, more of each payment chips away at the capital. This is why overpaying early in a mortgage saves disproportionately more interest than overpaying later.

Fixed vs variable rates

A fixed-rate mortgage locks your interest rate for a set period — commonly 2, 5 or 10 years — giving payment certainty. About 93% of UK borrowers choose fixed rates. A variable-rate mortgage can rise or fall, often tracking the Bank of England base rate. When your fixed period ends, you usually move to the lender's higher standard variable rate (SVR) unless you remortgage to a new deal.

The term: longer vs shorter

A longer term lowers your monthly payment but increases the total interest you pay over the life of the loan. A shorter term costs more each month but far less overall. Try both in the calculator to see the trade-off for your numbers.

Other costs to budget for

• Stamp Duty — a tax on property purchases above certain thresholds.
• Arrangement fees — lenders often charge £1,000–£2,000 to set up a deal.
• Valuation and legal fees — surveys, conveyancing, searches.
• Buildings insurance — required as a condition of most mortgages.

Try the calculator

Use our mortgage calculator to see your monthly repayment, total interest, and how your balance falls over time. Adjust the deposit, rate and term to compare scenarios.

Where to get advice

This guide explains how mortgages work but is not financial advice. A mortgage is one of the largest financial commitments most people make. For a recommendation suited to your circumstances, speak to a qualified mortgage broker or lender, who can access deals and provide a personalised illustration.