Mortgages Explained: FAQs 

Buying a property is one of the biggest financial commitments most people will ever make. Plenty of buyers use a mortgage to enable them to buy a home without needing the pay the full cost upfront. But, for first time buyers in particular, the mortgage process can feel complex, confusing, and full of unfamiliar terminology. 

This guide explains mortgages in clear, practical terms, helping you understand your options and make informed decisions when purchasing a property. 

Key summary

Mortgages allow buyers to spread the cost of buying a property over many years. Options include fixed-rate, variable-rate (SVR or tracker), and interest-only mortgages, each with pros and cons. Buyers typically need a deposit of at least 5–10%, and the amount you can borrow is based on income, outgoings, and credit history. Mortgages can be overpaid, remortgaged, or ported when moving home, and buy-to-let mortgages are required for rental properties. A mortgage in principle shows how much a lender may lend, while solicitors handle the legal work, ensuring the mortgage is properly secured. 

What is a mortgage? 

A mortgage is a long-term loan used to buy a property. Most people take out a mortgage to buy their home because they don’t have enough savings to purchase it outright. A mortgage means you can spread the cost of the property over many years, making homeownership more accessible. 

In simple terms: 

• You borrow money from a lender (e.g. a bank or building society) to buy the property 
• The loan is secured against the property (i.e. the lender can repossess it if you don’t pay the mortgage) 
• You repay the loan, plus interest, using monthly payments over an agreed period (the mortgage term) 

Don’t forget: if you don’t keep up with your mortgage repayments the lender has the right to repossess the property to recover the money they lent you. This is why choosing the right mortgage and understanding your obligations is so important. 

What are the different types of mortgages? 

There are several types of mortgages available Understanding the main types can help you choose the right option for you.  

Fixed-rate mortgages 

Your interest rate stays the same for a set period (usually 2, 3, or 5 years), even if the Bank of England’s base rate or the rate for the lender’s other products goes up or down. This offers certainty and predictable monthly payments. 

Pros: 

• Predictable monthly payments make budgeting easier and offer financial certainty 
• Protection from interest rate rises during the mortgage term 

Cons: 

• You won’t benefit if interest rates fall during the mortgage term 
• Initial rates may be higher than some variable deals 
• You may face early repayment charges if you want to switch deals or repay your mortgage before the end of the fixed term 

Variable-rate mortgages 

The interest rate you pay can change throughout your mortgage term. This includes: 

• Standard Variable Rate (SVR) mortgages, where the interest rate moves at the lender’s discretion 
• Tracker mortgages (linked to the Bank of England base rate at a set margin above or below it) 

With variable rate mortgages, your monthly payments may go up or down based on what’s happening in the wider economic landscape.  

Pros: 

• Greater flexibility, often with fewer early repayment charges 
• If interest rates go down, you’ll likely benefit from cheaper monthly payments 
• Initial rates may be lower than fixed-term mortgages 

Cons: 

• If interest rates go up, your monthly payments can increase at short notice 
• Harder to budget for long-term costs 
• Standard variable rate mortgages are at the lender’s discretion 

Interest-only mortgages  

You’re only required to pay the interest on the mortgage each month. The original loan amount remains unchanged. These mortgages are rarely offered for standard home purchases and need a credible repayment strategy for the capital balance.  

Pros: 

• Lower monthly payments, as you’re only paying the interest 
• Can help with cashflow in certain circumstances 

Cons: 

• The original loan amount (the amount you borrow to purchase the home) does not reduce 
• High risk for negative equity if property values fall 
• Requires a credible strategy to repay the capital at the end of the term 
• Not often available for standard home purchases  

What’s the difference between standard variable rate and tracker rate? 

Though both are variable-rate mortgages, standard variable rates (SVR) and tracker rates work slightly differently: 

Standard variable rates  

The rate you pay is set by the lender and can change at their discretion. Whilst lenders often adjust SVRs in response to Bank of England base rate changes, they’re not obliged to pass on the full change or move at the same time. Lenders might increase their SVR for commercial reasons unrelated to the base rate, giving them more control over the rate you pay. 

Most mortgages revert to the lender’s SVR once any initial fixed or discounted period ends. SVRs are typically higher than initial deal rates, which is why many homeowners remortgage when their initial period expires. 

Tracker mortgages 

These follow the Bank of England base rate directly, sitting at a set percentage above or below it. For example, a tracker might be “base rate plus 1%”, so if the base rate is 5%, you’d pay 6%. When the base rate changes, your rate changes automatically by the same amount. 

Trackers offer transparency as you can predict exactly how rate changes affect your payments. However, you’re fully exposed to base rate increases. Some trackers have a ‘collar’ (a minimum rate you’ll pay even if the base rate falls very low) or a ‘cap’ (a maximum rate protecting you from excessive rises). 

The choice between them depends on your circumstances. SVRs might occasionally fall below tracker rates if lenders compete for business, but they offer less predictability. Trackers provide certainty about how your rate is calculated but guarantee you’ll feel base rate increases immediately. 

How much can I borrow for a mortgage? 

Mortgage lenders typically lend between 3.5 and 4.5 times your annual income, though this varies based on individual circumstances. If you’re buying with someone else, lenders consider your combined income. Some lenders may offer higher multiples for certain professions or larger deposits. 

However, your income isn’t the only factor lenders use to assess affordability. They also look at your monthly outgoings, including existing debts, dependents such as children, credit card payments, living expenses and future commitments. They stress-test your ability to afford payments if interest rates rise. Your credit history also plays a crucial role, with better credit scores typically leading to more favourable terms. 

Also, the deposit you can provide significantly affects borrowing capacity. Whilst some schemes help first-time buyers with smaller deposits, larger deposits (typically 10% or more) unlock better interest rates and more product choices. 

What is a mortgage deposit? 

The deposit is the money you put towards the purchase price upfront. Typically, deposits are 5-10% of the purchase price, but the larger the deposit, the better the mortgage interest rates you may have access to. 

For example, on a £250,000 property: 

• 10% deposit = £25,000 
• Mortgage required for 90% of the home’s value = £225,000 

How much deposit do I need? 

The minimum deposit for most mortgages is 5% of the property’s purchase price, though not all lenders offer mortgages at this level and those that do often charge higher interest rates. First-time buyers commonly aim for a 10% deposit, which opens up significantly more mortgage products and better rates. 

The loan-to-value (LTV) ratio describes how much you’re borrowing relative to the property’s value. A 10% deposit means a 90% LTV mortgage, whilst a 25% deposit gives you a 75% LTV. Generally, the lower your LTV (meaning the larger your deposit), the better interest rates you’ll access. Significant rate improvements often occur at 90%, 85%, 75% and 60% LTV thresholds. 

Remember that beyond your deposit, you’ll need additional funds for solicitor’s fees, survey costs, stamp duty (if applicable), removal costs and initial home setup expenses. A good rule is to budget at least 3-5% of the purchase price on top of your deposit for these transaction costs. 

Can I get a mortgage with bad credit? 

Yes, getting a mortgage with bad credit is possible, though it’s more challenging and often means higher interest rates and larger deposit requirements. Lenders view bad credit as increased risk, so they price mortgages accordingly or decline applications altogether. 

The impact depends on the type, severity and recency of credit issues. Minor problems like a few missed payments several years ago are viewed much less seriously than recent defaults, County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), or bankruptcy. Generally, the more time that’s passed since credit problems and the more you’ve demonstrated improved financial management since, the better your chances. 

Specialist lenders exist who specifically cater to borrowers with adverse credit, though they typically charge higher rates than mainstream lenders. Some high-street lenders also consider applications with minor credit issues, particularly if you have a large deposit (usually at least 15-25%) and can demonstrate stable income and current financial responsibility. 

You should consider working with a mortgage broker experienced in adverse credit cases, as they know which lenders consider different types of credit issues and can position your application as favourably as possible. 

Do I need a mortgage to buy a property? 

No, a mortgage isn’t legally required to buy property. If you have enough funds, you can purchase a home outright as a cash buyer. Cash purchases often proceed more quickly, as there’s no mortgage application process or lender requirements to satisfy. Sellers sometimes prefer cash buyers due to reduced risk of the sale falling through. 

However, most people do need a mortgage, especially first-time buyers. Even those with enough funds to buy in cash sometimes choose mortgages for financial planning reasons, preferring to invest their funds elsewhere whilst benefiting from property ownership. 

What is remortgaging? 

Remortgaging means switching your mortgage to a new deal, either with your current lender or moving to a new one. It’s typically done when your fixed term ends. If you don’t remortgage when your fixed term ends, you usually move onto the lender’s standard variable rate. 

The process involves a new application, property valuation and legal work, though it’s usually more straightforward than your original mortgage. 

When remortgaging, you may be able to secure a better interest rate (depending on whether interest rates have gone up or down during your fixed terms) or release equity from your property (replacing your current mortgage with a larger one in return for a tax-free lump sum, for example to use for home improvements or to pay off other higher-interest debts). 

Timing matters with remortgaging. Starting the process three to six months before your current deal ends gives you time to find the best rates whilst avoiding early repayment charges. Many homeowners remortgage every few years to continually access competitive rates. 

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What mortgage questions should first-time buyers ask? 

First-time buyers should focus on several key areas when exploring mortgages: 

Understanding the true cost means looking beyond the headline interest rate. Account for arrangement fees, valuation fees, legal costs and potential mortgage broker fees. Higher fees might offset an attractive rate, whilst fee-free mortgages with slightly higher rates could prove more economical for smaller loans. 

The deposit requirement significantly impacts your options. Whilst 5% deposit mortgages exist, 10% or 15% deposits typically unlock better rates and more choice. Government schemes like the Mortgage Guarantee Scheme may assist, though eligibility criteria apply. 

First-time buyer relief on Stamp Duty Land Tax (SDLT) in England means you pay no tax on properties up to £425,000 (and reduced rates up to £625,000), compared to the standard £250,000 threshold. Understanding these savings helps with budgeting. Wales operates a separate Land Transaction Tax system with different thresholds and reliefs. 

Early repayment charges (ERCs) apply if you repay the mortgage during an initial fixed or discounted period. These can be substantial, so understanding the terms before committing protects you if circumstances change. 

How long do I take a mortgage out for? 

Standard mortgage terms commonly run for 25-35 years, though longer and shorter terms are available depending on your circumstances. 

First-time buyers may opt for longer terms to reduce monthly payments, with some lenders now offering terms up to 40 years. 

Longer terms mean lower monthly payments, but significantly more interest paid overall. Shorter terms mean higher payments but less interest paid. 

For example, a £200,000 mortgage at 4% interest costs approximately £1,055 monthly over 25 years (total interest: £116,500) compared to roughly £880 monthly over 35 years (total interest: £169,600). The difference of £175 per month costs an additional £53,100 in interest. 

Your age when the mortgage ends matters to lenders. Most require the mortgage to finish before you reach retirement age (often 65 to 75, depending on the lender), as income typically reduces after retirement.  

Can I overpay my mortgage? 

Yes, in most cases you can make overpayments on your mortgage, meaning you pay more than your required monthly payment to reduce your balance faster. This can reduce the total interest paid over the life of the mortgage, enable you to pay it off earlier, and help you build equity in your property more quickly.  

However, the amount you can overpay and when depends on the terms of your mortgages. Some put a cap on the amount of the outstanding balance you can pay each year without a penalty. If you go over this amount, you might have to pay an early repayment charge. Always check with your lender before making an overpayment. 

How do I choose the most suitable mortgage? 

Selecting the right mortgage depends on your personal circumstances, financial situation and future plans. We can’t give advice in this article, but talking to a mortgage broker can help you find the right mortgage for you. However, some things to consider include:  

Your budget and stability. These influence whether fixed or variable rates suit you better. If you need payment certainty and would struggle with increases, fixed-rate mortgages provide security. If you can accommodate payment fluctuations and want potential savings when rates fall, variable rates might appeal. 

Your timeline. If you’re likely to move within a few years, consider how portable the mortgage is to a new property and what early repayment charges apply. If you’re settling long-term, you might prioritise the lowest rate over flexibility. 

Consider how much risk you’re comfortable with. Stretching your budget to the maximum borrowing might work initially but leaves no buffer for rate rises, unexpected costs or income changes. Building in financial cushion creates security, particularly important for first-time buyers adjusting to homeownership expenses. 

What happens if I want to move before my mortgage term is up? 

It is possible to sell up and move before your mortgage term ends. Your mortgage might be portable, which means you can transfer your existing mortgage to a new property. 

If your mortgage isn’t portable or you’d rather switch to a new lender, you can repay your existing mortgage in full when you sell and take out a new one for your next purchase. Be aware that this might trigger an early repayment charge if you’re moving within your fixed-rate period. Always talk to your lender to discuss your options.  

Can I use a mortgage to buy an auction property? 

Yes, you can use a mortgage to buy property at auction, but it requires careful preparation as the process differs significantly from standard purchases. When your bid succeeds at auction, you usually immediately exchange contracts and pay a non-refundable deposit, then complete the purchase within a strict timeframe. 

This compressed timeline creates challenges for mortgage financing. Standard mortgage applications typically take several weeks or months, making them unsuitable for auction purchases. You need mortgage arrangements in place before bidding to ensure you can complete on time.  

Auction finance or bridging loans also offer potential solutions. They’re short-term loans that can be put in place faster than a mortgage. Then, you can arrange a standard mortgage to repay the bridging loan – but these products are usually expensive with high interest rates and arrangement fees. 

However you finance your auction purchase, legal advice before bidding is crucial to understand what you’re committing to purchase. 

Can I get a mortgage if I want to rent the property out? 

Yes, but you’ll need a buy-to-let mortgage rather than a standard residential mortgage. Buy-to-let mortgages are specifically designed for properties you intend to rent to tenants rather than live in yourself. Using a residential mortgage for a rental property usually breaches the mortgage terms and conditions, which can have serious consequences such as immediate repayment. 

Buy-to-let mortgages work differently from residential mortgages. Lenders assess affordability based on expected rental income rather than solely your personal income. Typically, the monthly rent must be 125-145% of the monthly mortgage payment to account for void periods, maintenance costs and interest rate rises. You’ll usually need a larger deposit, with most buy-to-let mortgages requiring at least 25% of the property’s value. 

Interest rates on buy-to-let mortgages are generally higher than residential mortgages, and many are interest-only rather than repayment mortgages. Lenders often require you to earn a minimum personal income, even though the rental income pays the mortgage, as this demonstrates financial stability. 

If your circumstances change and you need to let out a property you purchased with a residential mortgage, contact your lender to request “consent to let”. Some lenders permit this on a temporary basis whilst charging a higher interest rate, though this isn’t guaranteed. 

Do I need a survey if I’m buying with a mortgage? 

Your mortgage lender will carry out their own valuation of the property. This is a basic inspection for their own benefit to ensure it’s worth the amount they are lending you. This is not the same as a survey. Having a survey is not legally required, though usually strongly recommended especially for older or more unusual properties.  

What is a mortgage in principle or agreement in principle? 

An agreement in principle (AIP), commonly referred to as a mortgage in principle or decision in principle, is a statement from a mortgage lender confirming that they’d be willing to lend a certain amount to you. It’s not legally binding, so doesn’t guarantee they will lend to you nor mean you have to use that lender for your mortgage.  

Once you’ve found a property and are ready to proceed, you’ll submit a full mortgage application. 

If I get an Agreement in Principle, do I have to get that mortgage or can I switch if a better deal comes up? 

An Agreement in Principle (AIP) is not binding on either you or the lender. You’re free to switch to a different lender or mortgage product if you find a better deal for you. 

Even once you’ve submitted your full mortgage application, you are still free to change lenders until the point of exchange. 

What happens if I’m having trouble paying my mortgage? 

If you’re struggling with mortgage payments, taking action immediately gives you the most options and best chance of protecting your home. Ignoring the problem or missing payments without contacting your lender worsens your situation and limits available solutions. 

Contact your lender as soon as possible. Mortgage lenders are required under Financial Conduct Authority regulations to treat customers in financial difficulty fairly and sympathetically. Most have specialist teams to help struggling borrowers and can offer various solutions depending on your circumstances. 

Temporary payment arrangements might be available if you’re facing short-term difficulties like illness, job loss or unexpected expenses. Options include temporarily reducing payments, taking a payment holiday (where you don’t pay for a few months), switching to interest-only payments for a certain time period, or extending your mortgage term to reduce monthly costs. These solutions provide breathing space, though they typically mean you’ll pay more interest overall and take longer to repay the mortgage. 

Selling your home may be necessary if you can’t afford the payments long-term. Repossession is a last resort for lenders, but they can start proceedings if you don’t engage with them and arrears continue growing. 

Free debt advice is available from organisations like Citizens Advice, StepChange Debt Charity, and National Debtline. 

Do I need a solicitor for a mortgage? 

Yes, you’ll need a solicitor or licensed conveyancer to handle the legal aspects of buying property and securing your mortgage. Even if you’re not taking out a mortgage, conveyancing solicitors are essential for property purchases. 

Your solicitor conducts property searches, reviews contracts, handles the transfer of funds, registers your ownership with the Land Registry, and ensures your lender’s interests are protected through the mortgage deed. The lender requires legal representation to ensure the mortgage is properly secured against the property. 

Many buyers use the same solicitor to act for both themselves and their mortgage lender, as this is typically more efficient and cost-effective. 

Conclusion 

Mortgages can feel overwhelming at first, particularly for first-time buyers navigating an unfamiliar process alongside the legal and financial pressures of buying a home. Understanding how mortgages work, the different types available, and the key questions to ask puts you in a far stronger position to make confident, informed decisions. 

While mortgage advisers help you choose a suitable product, the legal side of a mortgage-backed purchase is just as important. From reviewing your mortgage offer and raising enquiries with the lender, to ensuring funds are released on time and your ownership is properly registered, legal advice plays a central role in protecting both you and your investment. 

Whether you are buying your first home, remortgaging, or moving home, having experienced legal support helps your transaction run smoothly and avoid costly surprises. Get your free, no obligation conveyancing quote today.