Mortgage guide
What is a mortgage and how does it work?
A mortgage is a loan used to buy property or land. You usually provide a deposit, borrow the rest from a lender, and repay the loan over an agreed term with interest.
The basics
You borrow money to buy a property and repay it over time.
MoneyHelper describes a mortgage as a loan used to buy property or land. Mortgage terms can vary significantly, but many run for decades rather than years.
The lender charges interest on the money borrowed. Your monthly payment depends on the mortgage amount, interest rate, term and whether the mortgage is repayment or interest-only.
A mortgage is a major long-term financial commitment, so affordability should be considered both now and if circumstances or interest rates change.
Deposit & loan-to-value
The deposit affects how much you need to borrow.
The difference between the property price and the mortgage amount is your deposit. The relationship between the mortgage and the property's value is commonly expressed as loan-to-value — LTV.
Example
On a £300,000 property, a £30,000 deposit means borrowing £270,000, which is a 90% LTV mortgage.
Why LTV matters
Lenders commonly use LTV bands when deciding which mortgage products and rates are available.
MoneyHelper notes that buyers will generally need a deposit and that some mortgages can be available with relatively small deposits, although lender criteria and product availability vary.
Repayment structure
Repayment and interest-only mortgages work differently.
Repayment mortgage
Monthly payments usually cover both interest and part of the capital. If all required payments are made, the mortgage should be repaid by the end of the term.
Interest-only mortgage
Monthly payments generally cover the interest only, so a separate credible plan is needed to repay the original capital at the end of the term.
An interest-only mortgage leaves the original capital outstanding unless it is repaid from another source.
Mortgage rates
The interest rate determines part of the cost of borrowing.
MoneyHelper identifies two broad mortgage-rate categories: fixed and variable.
Fixed rate
The interest rate is fixed for an agreed deal period, so monthly payments are normally predictable during that period.
Variable rate
The interest rate can change. This category includes tracker and discounted-rate mortgages.
A mortgage also needs to be compared on fees, incentives, early repayment charges and what happens after the initial deal ends — not just the headline interest rate.
Affordability
The amount you can borrow is not based on salary alone.
The FCA requires mortgage lenders to assess whether borrowers can afford repayments. Lenders commonly review income, expenditure, existing credit commitments, deposit and other circumstances.
They may request evidence such as payslips or other proof of income, bank statements and evidence of the deposit.
Each lender has its own criteria within the regulatory framework, so one lender declining an application does not necessarily mean every lender will reach the same decision.
Application process
A mortgage application normally moves through several stages.
1. Establish affordability
Work out the deposit, likely borrowing requirement and monthly payment range you can realistically sustain.
2. Research mortgage options
Compare product type, rate, term, fees and lender criteria.
3. Agreement in principle
A lender may provide an indication of potential borrowing before a full application, subject to further checks.
4. Full application
The lender reviews documentation, credit information and affordability in more detail.
5. Property valuation
The lender assesses the property for mortgage purposes. This is separate from a more detailed survey you may choose to arrange.
6. Mortgage offer
If the application and property are acceptable, the lender can issue a formal mortgage offer subject to its terms.
Mortgage advice
Planning a purchase or reviewing your mortgage?
A mortgage review can consider affordability, deposit, lender criteria, mortgage type, rate structure and the wider cost of the borrowing before you apply.
Book a conversationThis guide is for general information only and is not personal mortgage, financial or legal advice. Mortgage availability and lender criteria vary and can change. Your home may be repossessed if you do not keep up repayments on your mortgage. Content checked against current MoneyHelper and FCA guidance on 16 September 2026.