Mortgages, buying and owning a home

For most people a mortgage is the biggest financial commitment they will ever make, and the decisions made at the start, such as how much to borrow, which type of deal to choose and how long to fix for, can affect household finances for years. The aim of this section is to explain how mortgages work in plain English so you can ask better questions and spot the costs that are easy to overlook.

Lenders decide how much to lend based mainly on your income, your regular outgoings and your depositDepositA deposit is the part of a property's price that you pay from your own money, rather than borrowing it with a mortgage.Read more →. Many lend up to around four to four and a half times your annual income, although this varies and is tested against your ability to keep paying if interest rates rise. The bigger your deposit compared with the property price, the lower your loan-to-value (LTV)Loan-to-value (LTV)Loan-to-value, or LTV, is the size of your mortgage as a percentage of the property's value.Read more → ratio, and the lower LTVHow Mortgages Work in the UK: A Beginner's GuideHow UK mortgages work: deposits, loan-to-value, repayment versus interest-only, fixed and variable rates, affordability checks and the steps to getting one.Read more → bands generally come with cheaper interest rates.

The headline rate is only part of the picture. Arrangement fees, valuation fees, legal costs, surveys, stamp duty (Stamp Duty Land Tax in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales) and moving costs all add up. Understanding the total cost of a deal, rather than just the monthly payment, is one of the most useful habits a buyer can develop.

Mortgage deals are not for life. Most fixed and discounted deals last two to five years, after which you move to the lender's standard variable rate unless you switch. Knowing when your deal ends and shopping around well in advance is one of the simplest ways to avoid paying more than you need to. If you ever find it hard to keep up with payments, contact your lender early: they have rules to follow and more options than most people expect.