The Property Finance Guide

With a repayment mortgage, each monthly payment reduces both the capital balance and the interest accruing on it. By the end of the term, the loan is fully repaid. With an interest-only mortgage, monthly payments cover only the interest — the capital balance remains unchanged and must be repaid in full at the end of the term, typically through the sale of the property or a separate investment vehicle. Interest-only mortgages are now largely restricted to buy-to-let borrowers and high-net-worth individuals.

A fixed-rate mortgage locks your interest rate for a set period — typically two, three, or five years — giving certainty over monthly payments regardless of what happens to the Bank of England base rate. A variable-rate mortgage (including trackers and standard variable rates) moves with market conditions. Trackers follow the base rate directly; standard variable rates are set by the lender and can change at their discretion. Most borrowers opt for fixed rates for the predictability they offer, particularly in periods of rate uncertainty.

LTV is the ratio of your mortgage to the value of the property. A £270,000 mortgage on a £300,000 property is 90% LTV. The lower your LTV, the better the rates available to you — lenders reward lower risk. A 40% LTV borrower will typically access rates significantly better than a 90% LTV borrower. Building a larger deposit, or allowing time for the property to appreciate, can meaningfully reduce your LTV and your monthly costs.

Lenders assess affordability based on your income, existing commitments, and the likely impact of future rate rises. Most will stress-test your application against a rate several percentage points above the product rate to ensure you could still afford payments if rates increased. Self-employed applicants, those with variable income, or those with complex financial arrangements should expect more scrutiny and should prepare documentation carefully.

Compound interest means you earn returns not just on your original capital, but on the interest already accumulated. Over time, this creates exponential rather than linear growth. A £20,000 deposit growing at 4% per year with £500 monthly contributions becomes approximately £111,000 after ten years — of which around £31,000 is interest earned. The earlier you start, the more powerful the effect.

The Lifetime ISA (LISA) allows first-time buyers to save up to £4,000 per year and receive a 25% government bonus — up to £1,000 per year — on contributions. The funds must be used to purchase a first home worth no more than £450,000, or held until age 60. Stocks and Shares ISAs offer higher potential returns over longer timeframes but carry market risk. Cash ISAs provide certainty but typically offer lower returns. A combination of vehicles, matched to your timeline, is usually the most effective approach.

The minimum deposit for a residential mortgage is typically 5%, though 10% opens significantly better rates and 25% or more unlocks the most competitive products. For buy-to-let, most lenders require a minimum of 25%. Beyond the deposit itself, buyers should budget for stamp duty, legal fees, survey costs, and moving expenses — typically an additional 2–4% of the purchase price on top of the deposit.

SDLT is payable on residential property purchases in England and Northern Ireland above £250,000 (as of 2025). The rate is tiered: 0% up to £250,000; 5% on the portion from £250,001 to £925,000; 10% from £925,001 to £1.5m; and 12% above £1.5m. First-time buyers benefit from relief on the first £425,000. Second homes and buy-to-let purchases attract a 3% surcharge on all tiers. Scotland and Wales operate separate systems (LBTT and LTT respectively).

Conveyancing fees typically range from £1,000 to £3,000 depending on the complexity of the transaction, the value of the property, and the solicitor instructed. Leasehold properties, shared ownership, and new builds tend to attract higher fees. You will also pay for searches (local authority, drainage, environmental) — typically £300–£500 — and Land Registry registration fees.

Your mortgage lender will carry out a basic valuation to confirm the property is adequate security for the loan. This is not a survey and will not identify defects. A HomeBuyer Report (Level 2 survey) costs approximately £400–£800 and provides a condition rating for each element of the property. A full structural survey (Level 3) costs £600–£1,500 and is recommended for older, unusual, or significantly extended properties. Skipping a proper survey to save money is a false economy.

Many mortgage products carry an arrangement fee — typically £500–£2,000 — which can usually be added to the loan, though this increases the total interest paid. Mortgage brokers may charge a fee for their advice, or receive a commission from the lender, or both. A good broker with access to the whole of market will typically save you more than their fee through better product selection and rate negotiation.

Check your credit file with all three main agencies — Experian, Equifax, and TransUnion — before applying. Errors are more common than most people expect and can take weeks to correct. Ensure you are on the electoral roll at your current address, that all accounts are up to date, and that there are no unexplained defaults or county court judgements. Avoid applying for new credit in the six months before a mortgage application.

Employed applicants will typically need three months of payslips and three months of bank statements. Self-employed applicants will need two or three years of accounts (prepared by a qualified accountant) and corresponding SA302 tax calculations from HMRC. Lenders assess self-employed income based on net profit or salary plus dividends — understanding how your income is structured, and how lenders will interpret it, is essential before applying.

An Agreement in Principle (AIP) — also called a Decision in Principle or Mortgage in Principle — is a conditional indication from a lender of how much they would be prepared to lend, subject to full underwriting. Most estate agents will ask to see one before accepting an offer. An AIP is not a guarantee of a mortgage offer, but it demonstrates to sellers that you are a credible buyer and have taken the process seriously.