Buying & Affordability
How do mortgages work?
A UK residential mortgage is a long-term loan secured against your home. You put down a deposit (typically 5–25% of the purchase price) and the lender advances the balance, which you repay monthly over a term, usually 25 to 35 years. If you stop paying, the lender can repossess and sell the property to recover the debt.
Most borrowers choose between a fixed-rate product (the rate is locked, typically for two, three, five or ten years) and a variable rate that tracks the Bank of England base rate or the lender's standard variable rate. After the fixed period ends, the loan reverts to the SVR unless you remortgage.
Repayment mortgages clear both interest and capital each month so the balance reaches zero by the end of the term. Interest-only loans are largely restricted to buy-to-let. Eligibility depends on income, credit history, deposit and the property itself, all underwritten under FCA rules.
What this means in practice
A £200,000 repayment mortgage at 4.79% over 25 years comes to £1,148/month. Of that, £798 is interest and £350 is capital in month one — by month 120 the split has shifted to £597 interest and £551 capital as the balance reduces. Total interest paid over 25 years: £144,400. Drop the term to 20 years and monthly payments rise to £1,300, but total interest falls to £112,000. Cutting the rate to 3.79% (a strong 60% LTV product) saves £108/month or £32,400 over the term. Term, rate and LTV are the three levers borrowers control.
Related questions
What is an early repayment charge (ERC)?
A penalty for repaying the loan during the fixed-rate period. Typical ERC structures are 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4, 1% in year 5 of a five-year fix — calculated against the outstanding balance. On a £200,000 balance in year 2 of a five-year fix, that is £8,000 to redeem. Most products allow 10% capital overpayments per calendar year free of ERC, which is the standard route to overpay without penalty. After the fixed period ends the loan reverts to SVR with no ERC.
Should I fix for two, five or ten years?
Two-year fixes price lowest in normal yield curves but expose the borrower to remortgage cost in 24 months — typically £500–£1,500 in arrangement fees plus broker fee. Five-year fixes price slightly higher but defer that cost. Ten-year fixes are unusual outside specific lenders (Coventry, Habito) and generally portable but with more restrictive ERCs. The decision hinges on rate outlook, whether you might move within the fix, and whether overpayment limits constrain you. Brokers run breakeven analyses showing the rate path required for each option to win.
Building with UK property data?
Homedata returns 29 million UK properties — UPRN, EPC, Land Registry, risk — keyed by a single ID. Free tier, no card.
Get a free API key