A mortgage is the biggest loan most people ever take out. Understanding deposits, rates and what happens when your deal ends can save you tens of thousands over the years.
- Most lenders want a deposit of at least 5%, and the bigger it is, the cheaper your rate tends to be.
- A fixed rate locks your payment for 2 to 5 years. When it ends you drop onto a worse rate unless you switch.
- First-time buyers in England pay no stamp duty up to £300,000, and a Lifetime ISA adds 25% to what you save.
Figures for the 2026/27 tax year · last checked 2026-10-08
What a mortgage actually is
A mortgage is a loan to buy a home, secured against that home. You pay back the money you borrowed (the capital) plus interest on it, usually over 25 to 35 years. If you stop paying, the lender can eventually repossess the property, so it's a loan to take seriously.
Deposit and loan-to-value
You don't borrow the whole price. You put down a deposit, and the lender covers the rest. The share they cover is called the loan-to-value (LTV).
- Buy a £250,000 home with a £12,500 deposit (5%) and you borrow £237,500: that's 95% LTV.
- Put down £50,000 (20%) and you borrow £200,000: 80% LTV.
Lower LTV means less risk for the lender, so you get a lower interest rate. Rates usually step down at 90%, 85%, 80% and so on, which makes a few extra thousand in deposit surprisingly valuable.
Lenders also cap how much they'll lend against your pay, typically around 4 to 4.5 times your annual income. They'll check your spending, debts and credit record too.
Fixed, tracker and what happens next
| Fixed rate | Tracker | |
|---|---|---|
| How it works | Rate stays the same for 2 to 5 years | Moves up and down with the Bank of England base rate |
| Your payment | Predictable | Can change any month |
| Good for | Budgeting with certainty | Staying flexible, often with no exit fee |
| Risk | Early repayment charges if you leave early | Payments can rise |
Either way, the deal is temporary. When it ends you're moved to the lender's standard variable rate (SVR), which is usually much higher. Put a reminder in your calendar for 3 to 6 months before your deal ends and switch (remortgage) to a new one. Most lenders let you lock in a new rate well in advance.
What it really costs
Interest is the part people underestimate. Here's a £200,000 mortgage at 4.5% over 25 years:
- The money you borrowed£200,000
- Interest paid to the lender£133,500
Total repaid£333,500
About £1,112 a month for 25 years, assuming the rate stayed at 4.5% the whole time (in reality it will change when your deal ends). Illustration only.
Rates matter just as much. On the same loan, a rate of 5.5% instead of 4.5% costs roughly £116 more every month.
Stamp duty for first-time buyers
In England and Northern Ireland, first-time buyers pay no stamp duty on the first £300,000 and 5% on the slice between £300,000 and £500,000. Above £500,000 the relief disappears and normal rates apply to the whole price. Scotland (LBTT) and Wales (LTT) have their own rules.
Worked example
A first-time buyer in England buys a home for £275,000. Stamp duty: £0. Someone who isn't a first-time buyer would pay about £3,750 on the same price.
The Lifetime ISA: free money for a first home
If you're aged 18 to 39, a Lifetime ISA lets you save up to £4,000 a year and the government adds a 25% bonus (up to £1,000 a year). You can use it towards a first home costing up to £450,000.
The catch: if you take money out for anything other than a first home or from age 60, you lose 25% of it. That's more than the bonus, so you can end up with less than you put in. Only use it if you're confident you'll buy.
The other costs
The deposit isn't the only bill. Budget for solicitor fees, a survey, the lender's valuation, moving costs, and sometimes an arrangement fee. A sensible rule of thumb is a few thousand pounds on top of your deposit.
Use a broker, or at least compare. A good independent mortgage broker can see deals you can't find yourself, and many don't charge you a fee because the lender pays them. Always ask how they're paid.