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How do Mortgages work?

With what seems like an endless list of things to get your head around, trying to learn how mortgages work can be difficult. Read on if you want us to help!

Look, we know that trying to learn how mortgages work isn’t the easiest thing to do in the world. And for that reason, you shouldn’t feel embarrassed. Thousands of people are left wondering how do mortgages work in the UK and with an infinite list of jargon and formalities, it’s hard to blame them. Read on if you want a bite-sized insight into how mortgages work!

How do mortgages work?

Your deposit

You’ve found the home that you want to move in to, great! Now, you need to put down a deposit. When you put down a deposit on a property, this tends to be a minimum of 5-10% of the property’s value. But, the truth is readers, that the larger your deposit is, the far better chance of getting a good deal from your lender. Why you might ask? Basically, the safer the lender's money the better the deal they will offer you. If you have a 5% deposit & poor credit then, if you find a lender willing to advance you the money they are going to want a higher rate for doing so. Compare this to someone with 40% deposit & squeaky clean credit, you guessed it, they'll get a better rate.

How do interest rates work?

The decision you make on what mortgage deal to go for is going to be strongly influenced by the type of interest rate that you’ll pay. For example, if you go for a variable rate mortgage then the amount that you’ll be paying in interest is going to be likely to change over time. This is controlled by the Bank of England’s base rate. This is because if the base rate set by the Bank of England rises then so will interest rates and vice versa.

Alternatively, you could go for a fixed rate mortgage. This essentially means that during this period of time, you’ll pay the same rate of interest. This is a large reason why so many buyers, especially first-time ones, have a fixed interest rate during their introductory period. It offers stability and financial certainty regarding the amount that you’ll be paying. This can go a long way to reducing any anxieties that you might have about the amounts that you’re due to pay on your mortgage repayments. This can be a great way to help you settle down, especially if you’re only just getting your head around how mortgages work in the UK.

What if I want to move?

This is a slightly trickier one to understand. If you want to move house, how mortgages in the UK operate is through a process called porting. This basically means that you may be able to move your current mortgage over to your new home. But, to ensure that you can do this, you’ll need to prove to your lender that your monthly repayments are going to be affordable. This is going to be absolutely vital so that you can prove to your lender that they should move your current deal over to the new property.

Mortgages Online

If you’ve got any more questions don’t be afraid to contact us at Mortgages Online! Whether you’re first time buyers or looking to remortgage, MO can help you. We compare 1000s of deals from 100s of different mortgage lenders (be it banks or building societies) to find the deal that is right for you.

We also have a wealth of information on everything surrounding mortgages, including types of mortgages, stamp duty guides and even information on mortgage calculators too. All of our services are free, so no need to get your credit card out. Get started with our simple to use, free service!


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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