What Is a Mortgage? Beginner's Guide

What Do You Mean by Mortgage?

A mortgage is a loan that you take out to buy a property. The property itself acts as security for the loan — meaning if you can't make the repayments, the lender has the right to take the property back (this is called repossession).

In simple words: a mortgage lets you buy a home now and pay for it gradually over many years.

Almost everyone who buys a home in the UK uses a mortgage — very few people can afford to pay the full price in cash. Even people who could afford to pay cash often choose a mortgage because it frees up money for other investments.

What Is a Mortgage in Simple Words?

Here's how a mortgage works, step by step:

1. You find a home you want to buy — let's say it costs £250,000
2. You save a deposit — let's say £25,000 (10% of the price)
3. You borrow the rest from a lender — in this case, £225,000
4. You pay the lender back monthly — with interest — over an agreed period (e.g. 25 years)
5. Once it's fully paid off, you own the home outright with no debt

The amount you borrow is called the mortgage. The percentage of the property value you borrow is called the loan-to-value (LTV). In our example, borrowing £225,000 on a £250,000 property is a 90% LTV.

What Is an Example of a Mortgage?

Here's a real-world example:

So Sarah's monthly payment is £1,251. Over 25 years, she'll pay back the original £225,000 plus about £150,000 in interest. That's why getting the best rate matters — even a 0.5% difference could save her over £15,000.

Use our mortgage estimator to calculate payments for your own situation.

What Are the 6 Types of Mortgages?

There are six main types of mortgage available in the UK:

1. Fixed-rate mortgage — Your interest rate stays the same for a set period (usually 2 or 5 years). Your monthly payments don't change, making budgeting easy. The most popular type in the UK.
2. Tracker mortgage — Your rate moves up and down with the Bank of England base rate. If the base rate drops, your payments fall. If it rises, your payments go up.
3. Standard variable rate (SVR) — Your lender's default rate. It's usually the most expensive option and can change at any time. You're moved to the SVR when your fixed or tracker deal ends.
4. Discount variable rate — A variable rate with a discount applied for a set period (e.g. 2% below the SVR for 2 years). Cheaper initially, but can still go up or down.
5. Interest-only mortgage — You only pay the interest each month, not the capital. At the end of the term, you still owe the full amount borrowed. Mainly used by buy-to-let landlords and high earners.
6. Offset mortgage — Your savings are linked to your mortgage and reduce the amount of interest you pay. For example, if you owe £200,000 and have £30,000 in savings, you only pay interest on £170,000.

How Long Can I Have a Mortgage For?

In the UK, the most common mortgage term is 25 years, but terms of 5 to 40 years are available depending on the lender.

A shorter term means higher monthly payments but less total interest. A longer term means lower monthly payments but more interest overall. Most first-time buyers choose 25–30 years to keep payments manageable.

You can usually change your term when you remortgage, so it's not a permanent decision.

How Much Can I Borrow for a Mortgage?

Most UK lenders offer between 4 and 5.5 times your annual income. Some specialist lenders go up to 6× for certain professions.

• Earning £30,000: You could borrow £120,000–£165,000
• Earning £40,000: You could borrow £160,000–£220,000
• Earning £50,000: You could borrow £200,000–£275,000
• Earning £60,000: You could borrow £240,000–£330,000

Your actual borrowing also depends on your credit score, existing debts, and monthly outgoings. Read our full mortgage affordability guide or use our eligibility calculator.

Key Mortgage Terms Explained

Here are the most important terms you'll come across:

• Deposit: The cash you put down upfront (usually 5–20% of the property price)
• LTV (loan-to-value): The percentage of the property value you're borrowing
• Interest rate: The annual cost of borrowing, expressed as a percentage
• Term: How many years you have to repay the mortgage
• Repayment mortgage: Each monthly payment covers interest AND some capital — at the end of the term, the mortgage is fully paid off
• AIP (Agreement in Principle): A conditional offer showing how much a lender might lend you
• SVR (Standard Variable Rate): The lender's default rate — usually the most expensive
• ERC (Early Repayment Charge): A penalty for leaving your mortgage deal early

For a complete list, see our mortgage jargon buster.