Buying a home is one of the biggest financial decisions you’ll ever make, and for most people, that means getting a mortgage. But with so many options and industry jargon, it can feel overwhelming. This guide breaks down UK mortgages in a simple and easy-to-understand way, helping you take the first step onto the property ladder with confidence.

What is a Mortgage, and how does it work?

The idea of mortgages dates back to medieval England, when landowners needed to borrow money for trade, military campaigns, or other ventures. To secure these loans, they would pledge their land as collateral—laying the foundation for the mortgage system we use today.

A mortgage is a loan from a bank, building society, or financial institution that helps you buy a property. Instead of paying the full amount upfront, you borrow money and repay it in monthly installments with interest, usually around 25 years. Because it’s a secured loan, the property itself acts as collateral—meaning if you don’t keep up with repayments, the lender can repossess and sell it.

Mortgage lenders range from high street banks to specialist financial institutions, each offering different types of mortgages to suit various financial situations.

Most Common Types of Mortgages in the UK

The list of UK mortgages is endless, and not all of them may be relevant to you, so before you get confused, here’s a quick rundown of the most common types:

1. Fixed Mortgage
   One of the most popular and predictable options, this mortgage locks in your interest rate for a set period (e.g., 2, 5, or 10 years). Your repayments stay the same, offering stability even if interest rates rise. The downside? If rates drop, you won’t benefit, and leaving early may come with exit fees.

2. Variable-Rate Mortgage
   While fixed-rate mortgages offer predictability, variable-rate mortgages keep things a little more exciting — but whether it’s good or bad depends on whether your repayments can go up or down based on market conditions. If you’re comfortable with some financial flexibility and the possibility of lower rates, this could be a good fit!

3. Interest-only Mortgage
   With Interest-only Mortgages, you only pay the interest each month, keeping your payments low—but there’s a catch. You must repay the full loan amount in one go at the end of the term. This type is popular with landlords, but it requires a solid repayment plan. If you don’t have the funds ready when the time comes, selling the property might be your only option.

4. Repayment Mortgage
   The most reliable choice—each month, you pay off both the loan and interest, gradually reducing what you owe. By the end of the term, the house is completely yours, with no big lump sums waiting at the finish line. It’s a steady and predictable way to own your home outright.

5. Help-to-Buy and Shared Ownership Mortgages
   Great for first-time buyers with a small deposit. These government-backed schemes are designed to help first-time buyers with smaller deposits get onto the property ladder. Help-to-Buy offers an equity loan to boost your deposit, while Shared Ownership allows you to buy a share of a property and pay rent on the rest—making homeownership more affordable.

6. Buy-To-Let Mortgage
   If you’re planning to rent out a property, this is the go-to option. Designed for landlords, these mortgages have different criteria, usually requiring a larger deposit and higher interest rates, but they allow you to rent out the property. If you’re looking at buy-to-let properties, it’s also worth thinking about what comes next—securing tenants and managing your rental. Our guide on Tenancy Agreements breaks down what landlords need to know before taking on tenants..

How can you get a Mortgage?

Getting a mortgage is a bit like laying the groundwork for your property journey. But don’t worry, with a little prep, the process can be much smoother. Let’s break it down step by step so you know exactly what to expect:

Step 1: Check your Credit Score

Think of your credit score as your financial CV—lenders use it to decide whether you’re a reliable borrower. The higher your score, the better your chances of securing a great mortgage deal. If your score needs a boost, take time to improve it before applying. You can check your report through agencies like Experian, Equifax, or TransUnion.

Step 2: Work out your Budget

It’s not just about how much you can borrow—it’s about how much you can comfortably afford. Factor in your deposit, monthly repayments, and additional costs like stamp duty, legal fees, and surveys. A realistic budget will help you avoid surprises down the line.

Step 3: Find the Right Mortgage

With so many options, it’s important to compare deals or speak to a mortgage broker to find one that fits your needs. Or refer back to our section above for an overview on “Most Common Types of Mortgages in the UK.” 

Step 4: Get an Agreement in Principle (AIP)

An AIP is a lender’s way of estimating how much they might be willing to lend you based on basic financial details. While it’s not a formal mortgage offer, having an AIP gives you a clear idea of your budget and demonstrates to sellers that you’re a serious buyer, which can be advantageous in a competitive market. Obtaining an AIP typically involves a soft credit check that doesn’t affect your credit score.

Documents typically required for an AIP:

• Personal details: Your full name, date of birth, and current address.​
• Address history: Details of your addresses for the past three years.​
• Income information: Your employment status, salary, and any additional income sources.​
• Outgoings: Information about existing financial commitments, such as loans or credit cards.

Step 5: Apply for your Mortgage

Once you’ve found your ideal home and have an AIP, it’s time to proceed with the full mortgage application. This step involves a comprehensive assessment by the lender, who will require various documents to verify your financial situation.​

Documents typically required for a full mortgage application:

1. Proof of identity: Valid passport or UK photocard driving licence.
2. Proof of address: Recent utility bills, council tax statements, or bank statements dated within the last three months.​
3. Proof of income: For Employed applicants, recent payslips (usually covering the last three months) and a P60 form from your employer are required. HMRC tax calculations and overviews or an accountant’s certificate are required for self-employed applicants.
4. Bank statements: Statements from the past three to six months to showcase your financial habits and outgoings.
5. Evidence of deposit: Savings account statements or a gifted deposit letter if the funds are from a family member.

Want to ensure you get the best returns on your investment? Start planning ahead with our guide to maximising rental income.

Step 6: Property Valuation and Checks

Before approving your loan, the lender will arrange a valuation to make sure the property is worth the amount you’re borrowing. You may also need additional property surveys to assess its condition.

Step 7: Receive your Mortgage Offer

If all goes well, the lender will issue a formal mortgage offer, outlining your loan amount, interest rate, and repayment terms. Review everything carefully before moving to the final step!

Step 8: Exchange Contracts and Complete the Purchase

Your solicitor will handle the legal process, and once contracts are exchanged, the mortgage funds will be released. That’s it—you’re officially a homeowner! Time to get those keys and start your new chapter.

Choosing the Right Mortgage for You

Choosing the right mortgage is a big step, but with the right knowledge, it doesn’t have to be overwhelming. By following our guide, comparing rates, understanding repayment terms, and using mortgage calculators, you can make a confident and informed decision.

Whether you’re a first-time buyer or a seasoned landlord, Pink Elephant is here to help—from deal to deed! Beyond mortgages, we can take care of your property management needs and help you find the right tenants, making the journey even easier. Contact us to begin!

FAQs

Can mortgage cover stamp duty?

Yes, you can add Stamp Duty to your mortgage, but this will increase your loan amount and accrue interest over the term. It may also impact your loan-to-value (LTV) ratio.

How is mortgage calculated?

A mortgage is calculated by subtracting your deposit from the property’s price. For example, if a home costs £300,000 and you have a £60,000 deposit, your mortgage would be £240,000 plus interest. Your monthly payments depend on the loan amount, interest rate, and term.

What mortgage can I afford?

To determine what mortgage you can afford, consider two key factors: your housing costs should be no more than 32% of your gross income, and your total debt (including mortgage, car loans, and credit cards) should stay below 40%. Sticking to these limits can help keep your finances stable.

Will mortgages go down?

Mortgage rates are expected to decrease in 2025 if inflation continues to slow. However, if inflation remains high, rates may not drop as much.

What’s the difference between a home loan and a mortgage loan?

A home loan helps you buy a property when you don’t have the full amount upfront, while a mortgage serves as security for the loan, protecting the lender in case of non-payment.