UK Mortgage Guide 2025: Types, Rates & How to Get the Best Deal

1. Mortgage Basics Explained

A mortgage is a loan secured against a property. If you fail to keep up repayments, the lender can repossess your home and sell it to recover the debt.

Key Terms You Need to Know

• Principal: The amount you borrow
• Interest: The cost of borrowing, expressed as a percentage
• Term: How long you have to repay (typically 25-35 years)
• LTV: Loan-to-Value ratio—your loan as a percentage of the property value
• Deposit: The amount you pay upfront (property price minus mortgage)
• Equity: The portion of the property you own outright

Repayment vs Interest-Only

Repayment mortgage: Each monthly payment covers interest plus some of the capital. At the end of the term, the mortgage is fully paid off.

Interest-only mortgage: You only pay interest each month. The original loan amount remains unchanged and must be repaid at the end. These are now rare for residential mortgages and usually require a credible repayment plan.

2. Types of Mortgages

Understanding different mortgage types helps you choose the right one for your circumstances.

Fixed Rate Mortgages

Your interest rate stays the same for a set period (typically 2, 3, 5, or 10 years). Benefits:

• Payment certainty—you know exactly what you'll pay
• Protection from rate rises
• Easier to budget

Downsides: Early repayment charges if you leave, and you miss out if rates fall.

Variable Rate Mortgages

Standard Variable Rate (SVR): The lender's default rate. Usually higher and can change at any time.

Tracker: Follows the Bank of England base rate plus a set percentage. Moves up and down with the base rate.

Discount: A percentage off the lender's SVR for a set period.

3. Understanding Interest Rates

Interest rates determine how much you pay to borrow money. Even small differences add up to significant amounts over a mortgage term.

2025 Rate Environment

Following the Bank of England rate rises of 2022-2023, rates have stabilised. In early 2025:

• Base rate: 4.75%
• Best 2-year fixes: Around 4.2-4.8%
• Best 5-year fixes: Around 4.0-4.5%
• Rates depend heavily on LTV and personal circumstances

APRC vs Initial Rate

When comparing mortgages, you'll see two rates:

• Initial rate: What you pay during the deal period
• APRC (Annual Percentage Rate of Charge): The total cost including fees, assuming you stay on the product for the full term

4. Loan-to-Value (LTV) Explained

LTV is crucial because it determines which deals you can access. Lower LTV = better rates.

How LTV Works

Formula: LTV = (Mortgage Amount ÷ Property Value) × 100

Example: £180,000 mortgage on a £200,000 property = 90% LTV

LTV Tiers and Rates

5. Affordability Assessments

Lenders don't just look at your income—they conduct detailed affordability checks to ensure you can sustain payments.

What Lenders Consider

• Basic salary
• Bonus and overtime (often only 50% counted)
• Other income (rental, investments)
• Existing debt repayments
• Regular committed spending
• Dependants
• Credit score

Income Multiples

As a rough guide, most lenders offer 4-4.5x your income. Some specialist lenders go up to 5.5x for high earners.

Stress Testing

Lenders must check you could afford payments if rates rise. They typically test at the SVR (often 7-8%) or the pay rate plus 3%, whichever is higher.

6. First-Time Buyer Tips

As a first-time buyer, you have access to special schemes and some stamp duty advantages.

Government Schemes

• First Homes: 30-50% discount on new builds (local eligibility criteria)
• Shared Ownership: Buy 25-75% and pay rent on the rest
• Lifetime ISA: 25% bonus on savings up to £4,000/year for a first home

Stamp Duty Relief

First-time buyers pay no stamp duty on properties up to £425,000 (until March 2025, then £300,000). Reduced rates apply up to £625,000.

95% LTV Mortgages

Many lenders offer 95% LTV mortgages, meaning you only need a 5% deposit. However, rates are higher and affordability is stricter.

7. The Application Process

Understanding the mortgage application process helps you prepare and avoid delays.

Step 1: Agreement in Principle (AIP)

A conditional indication of how much you could borrow. Usually:

• Based on basic information
• Often involves a soft credit check
• Valid for 60-90 days
• Not guaranteed but shows sellers you're serious

Step 2: Full Application

Documents typically required:

• ID (passport, driving licence)
• Proof of address
• 3 months' bank statements
• 3 months' payslips
• P60 or tax returns (self-employed: 2-3 years' accounts)
• Details of existing debts

Step 3: Valuation

The lender arranges a valuation to ensure the property is worth what you're paying. This is for the lender's protection, not a survey of condition.

Step 4: Mortgage Offer

If approved, you receive a formal mortgage offer. This is typically valid for 3-6 months.

Step 5: Completion

On completion day, the mortgage funds are transferred and you get the keys.

8. Fees and Costs

Mortgages come with various fees beyond the interest rate. Understanding these helps you compare true costs.

Common Mortgage Fees

Adding Fees to the Mortgage

Many fees can be added to the mortgage amount instead of paying upfront. However, you'll pay interest on them for the full term, making them more expensive in the long run.

9. Remortgaging Guide

When your mortgage deal ends, you typically move to the lender's SVR—usually much higher. Remortgaging to a new deal can save thousands.

When to Remortgage

• Fixed/deal period ending
• SVR is significantly higher than new deals
• Property value has increased (lower LTV = better rates)
• Want to release equity
• Want to overpay or change terms

Remortgage Timeline

Start looking 3-4 months before your deal ends:

• Most lenders allow rate reservations 3-6 months ahead
• Application and valuation take time
• Legal work can take several weeks

Product Transfer vs Full Remortgage

Product transfer: Switching to a new deal with your current lender. Often quicker and may not require a new valuation.

Full remortgage: Moving to a different lender. May offer better rates but involves full application process.

10. Buy-to-Let Mortgages

Buy-to-let mortgages are for properties you'll rent out. They work differently from residential mortgages.

Key Differences

• Higher deposit: Minimum 25%, often 40% for better rates
• Higher interest rates: Typically 0.5-1.5% more than residential
• Rental coverage: Rent must cover 125-145% of mortgage payments
• Often interest-only: Maximises rental yield
• Stress tested at higher rates: Often 5.5%+

Limited Company BTL

Many landlords now purchase through limited companies due to tax changes (Section 24). Company mortgages:

• Allow full mortgage interest deduction
• Corporation tax instead of income tax
• Slightly higher rates and stricter criteria
• Directors usually provide personal guarantees

11. Getting a Mortgage with Problems

It's still possible to get a mortgage even with credit issues or unusual circumstances, though options may be more limited.

Bad Credit

Specialist lenders consider applicants with:

• Missed payments
• Defaults
• CCJs (County Court Judgments)
• IVAs or bankruptcy (usually after discharge)

Expect higher rates and may need larger deposits. A broker specialising in adverse credit can help.

Self-Employment

Self-employed applicants typically need:

• 2-3 years of accounts or tax returns
• SA302 forms from HMRC
• Some lenders accept 1 year for established businesses

Non-Standard Properties

Some properties are harder to mortgage:

• Ex-council flats
• High-rise buildings
• Non-standard construction
• Properties with short leases
• Properties near commercial premises

12. Tips for the Best Deal

Getting the best mortgage deal can save you thousands. Here's how to maximise your chances.

Use a Mortgage Broker

Benefits of using a broker:

• Access to whole of market (or large panel)
• Expert knowledge of lender criteria
• Can find deals you wouldn't see
• Handle paperwork and chase progress
• Many are free (paid by lender commission)

Improve Your Application

• Check and clean up your credit report
• Reduce existing debt
• Save the largest deposit possible
• Avoid applying for credit before applying
• Ensure you're on the electoral roll

Consider the Total Cost

Don't just look at the interest rate:

• Add up all fees
• Consider how long you'll stay
• Check early repayment charges
• Look at what happens after the deal period

Conclusion

Securing the right mortgage is one of the most important financial decisions you'll make. Taking time to understand your options and shop around can save you tens of thousands of pounds over the life of your loan.

Key takeaways:

• Lower LTV = better rates, so maximise your deposit
• Fixed rates provide certainty but commit you for the term
• Always remortgage before falling onto SVR
• Consider using a broker for access and expertise
• Look at total costs, not just the headline rate
• Prepare your application carefully for the best chance of approval