What is a mortgage?
It is a loan from a bank or building society that lets you buy a property. You then pay back the amount you have borrowed plus interest over a period of around 25 years, although you can take them out over longer or shorter terms.
The mortgage is secured against your property until you have paid it off in full. This means the lender could repossess your home if you fail to repay it.
You can get one either on your own or held jointly with one or more people.
How do mortgage deposits work?
You have to pay for part of the property yourself, and this amount is called the deposit.
It is shown as a percentage of the property's value, so if you bought a house for £200,000, a 10% deposit would come to £20,000.
Your mortgage provider will lend you the rest, which is called the loan to value (LTV). In the above example a 90% LTV mortgage would cover the remaining £180,000, which would be the amount you owe your lender.
Where can you get them?
Mortgages are offered by financial companies like banks and building societies.
You can get a mortgage directly from the lender; use our comparisons to find the right one.
You could also find a mortgage and get advice from a mortgage broker or independent financial adviser. Some are whole of market, which means they can offer mortgages from every lender, and some offer exclusive deals.
What type of mortgage do you need?
There are many different types of mortgage, each designed for different financial circumstances.
Mortgages for your first property
First time buyer mortgages can let you buy a home even if you have a small deposit. Here is everything you need to know about getting your first mortgage
Help to Buy mortgages can improve your chances of buying a home if you have a small deposit with help from the government. Here is how Help to Buy works.
The Right to Buy scheme lets you buy your council house at a discounted price, and you can use the discount as part of your deposit. Here is how Right to Buy works.
Guarantor mortgages could help you buy a property with a small deposit if a relative or friend is willing to be named on the mortgage with you and make any payments you miss. Here is how guarantor mortgages work and how to get one.
Mortgages for your financial circumstances
Mortgages for bad credit could let you buy a home even if you have had financial difficulties in the past. Here is how to get a mortgage with bad credit.
Mortgages with no deposit are not offered unless you have a guarantor named on the mortgage too. However, it can still be possible to get on the property ladder if you have a very small deposit saved; this guide explains how.
Self employed mortgages are for if you run your own business or have an income that is hard to prove to lenders. Here is how to get a self-employed mortgage.
Mortgages for older borrowers could accept you even if you are over the maximum age specified by most lenders; here is how to find one.
Mortgage for specific purposes
Buy to let mortgages let you purchase a property you intend to rent out to someone else. Here is everything you need to know about buy to let mortgages.
Second mortgages let you purchase a property other than your main residence, like holiday homes or investment properties. Compare second mortgages.
Lifetime and equity release mortgages give you cash in return for equity in your home, which is paid back when your home is sold. Here is how they work.
Commercial mortgages let you purchase property used by businesses.
What are interest only and repayment mortgages?
Most mortgages are repayment mortgages. Your monthly payments will go towards both the interest charged on your mortgage and clearing the outstanding balance. By the end of the term you will have paid off the full amount you borrowed.
If you get an interest only mortgage, your monthly repayments only cover the interest owed, so your balance will not go down. At the end of the term you will need to pay off the full balance, so you will need to have saved up this amount separately using a repayment vehicle like savings, shares, an ISA or investment.
How much does a mortgage cost?
The amount you have to pay each month and in total over the life of your mortgage depends on the deal you get and the cost of the property.
The main costs are:
The interest rate will affect how much you have to repay overall and what you pay each month.
It is accrued across the lifetime of the mortgage and is charged as a percentage rate on the amount you owe.
For example, if you took out a £200,000 mortgage with an interest of 4% over 25 years, you could pay interest of about £116,702 and repay a total of £316,702.
The mortgage in the above example could cost around:
£1,056 per month with an interest rate of 4%
£1,289 per month at 5%
You can work out how much interest would cost on a mortgage for the amount you need. HSBC's interest calculator will show you the amount you would have to pay each month, the total interest amount and an illustration of how much of the balance you would pay off each year.
Product fees are charged for taking out the mortgage
Application fees can be charged when you apply for a mortgage, whether you end up taking it out or not
Valuation fees may be charged by your lender for working out how much your property is worth
Higher lending charges come with some mortgages if you have a small deposit
Telegraphic transfer fees are charged when the bank transfers the money they are lending to you (usually to your solicitor)
Broker fees can be charged if you take out a mortgage recommended by a broker
You may also have to pay fees on your old mortgage:
Early repayments charges if you pay it off before the end of its term
Exit fees are charged on some mortgages when you move to a new lender
Once you have your mortgage, missing repayments will usually mean you will be charged a fee by your lender, pushing up the total amount you owe.
Should you get a fixed or variable mortgage?
There are several different ways that mortgages can set their interest rates:
Variable mortgages can change their interest rate at any point, although they usually rise and fall roughly in line with the Bank of England base rate.
Fixed rate mortgages guarantee that their interest rates will not change for a set period, usually between one and five years.
Tracker mortgages have variable rates that follow the Bank of England base rate exactly. A mortgage set at 2% above the base rate would be 2.5% with the base rate at 0.5%. If the base rate later went up to 1%, the mortgage rate would change to 3%.
Discount mortgages offer a rate set at around one or two percent less than the lender's standard variable rate. The rate will rise and fall with the lender's standard variable rate, and the discount will last for a set period of a year or more.
It is the interest rate that the Bank of England charges when it lends money to banks and building societies, who often use it to set their own interest rates for mortgages and savings accounts. When the Bank of England base rate goes up or down, most variable interest rates change by around the same amount.
It is the mortgage interest rate that lenders put you onto after a fixed rate, discounted or tracker deal ends. It can go up or down whenever the lender chooses to change it.
How to get a mortgage
You will need to:
Save a deposit if you are buying your first home. You could use the equity in your property towards the deposit if you own your current home.
Find the property you want to buy
Make sure you can afford the mortgage you choose
Get a mortgage in principle, which will let you know approximately how much you could borrow
Put in an offer on the property
If your offer is accepted, take out the mortgage
You will then be able to buy your new home, although you will need a solicitor to handle searches, surveys and contracts.
Will you be accepted for a mortgage?
Mortgage lenders all have different standards and requirements. The following factors will affect whether lenders will offer you a mortgage and how much they will be willing to lend to you:
The value of the property
The length of the mortgage term
Your credit record
If you are applying solely or jointly
This guide explains how lenders decide and if you can afford a mortgage.
How to manage your new mortgage
Once you move into your new home you will need to start making monthly repayments on your mortgage. If you miss any payments, the amount you owe could increase and your credit record could be damaged. If you fall too far behind your lender could repossess your house.
If you set up a direct debit to pay your mortgage, you will never miss a payment as long as there is enough money in your bank account.
Here is how to manage your mortgage so you can keep up with your repayments and make sure you are always on the best deal.