A mortgage is a secured loan using property as collateral — if you stop repaying, the lender can ultimately repossess and sell the property to recover the debt. In the UK, residential mortgages are FCA-regulated, heavily standardised in their application process, and offered by over 80 lenders ranging from high-street banks to specialist building societies. Understanding how they work, what lenders look for, and which product to choose puts you in control of what is almost always the largest financial commitment of your life.
The anatomy of a mortgage
The loan itself — the purchase price minus your deposit. On a £280,000 property with a £42,000 deposit, the principal is £238,000.
The cost of borrowing — expressed as an annual rate (APR or AER). At 4.2% on £238,000, the annual interest charge is approximately £9,996 or £833/month in year one.
Typically 25–35 years for residential mortgages. A longer term reduces monthly payments but increases total interest paid over the life of the loan.
On a repayment mortgage, each monthly payment covers both the interest and a portion of the principal. Early payments are predominantly interest; later payments increasingly reduce the outstanding balance. By the end of the term, the mortgage is fully repaid. Use our mortgage calculator to see exactly how much your monthly payment would be at any loan size, rate, and term.
Current mortgage rates — 2026 context
| Product type | LTV | Indicative rate (Jan 2026) | Monthly cost on £220,000 |
|---|---|---|---|
| 2-year fix (repayment) | 95% | ~5.5–6.0% | ~£1,440–£1,530/mo |
| 2-year fix (repayment) | 90% | ~4.7–5.1% | ~£1,280–£1,340/mo |
| 5-year fix (repayment) | 85% | ~4.1–4.5% | ~£1,180–£1,240/mo |
| 5-year fix (repayment) | 80% | ~3.9–4.2% | ~£1,140–£1,180/mo |
| 5-year fix (repayment) | 75% | ~3.7–4.0% | ~£1,100–£1,140/mo |
| Bank of England base rate | — | ~3.75% | Reference rate |
| Standard Variable Rate (SVR) | — | ~7.5–8.5% | ~£1,680–£1,820/mo |
Rates have fallen significantly from the 2023 peak — 5-year fixes were reaching 5.5–6% at the top of the cycle. In 2026, with the Bank of England base rate around 3.75% following a gradual cutting cycle, the best residential mortgage rates sit in the 3.7–4.5% range for buyers with 15–25% deposits. The SVR row illustrates why allowing a fixed rate to expire without remortgaging is so costly — the gap between SVR and current fixed rates is typically 3–4 percentage points.
Types of residential mortgage
Rate fixed for a set period — typically 2 or 5 years. Monthly payment is predictable and immune to base rate changes during the fixed term. At the end of the term, the mortgage reverts to the lender's Standard Variable Rate unless you remortgage. Most residential buyers choose fixed rates for payment certainty.
Tracks the Bank of England base rate at a fixed margin (e.g. base + 1.5%). Monthly payments change when the base rate changes. Lower initial rate when base rate is falling; higher when rising. Suitable for buyers who believe rates will fall further and want to benefit — with the acceptance of payment uncertainty.
Rate set at a discount below the lender's SVR — not the base rate. Moves when the lender chooses to change its SVR, which may not mirror base rate movements precisely. Less transparent than a tracker; less popular as a result.
Savings held in a linked account are offset against the mortgage balance for interest calculation purposes. If you have a £200,000 mortgage and £30,000 savings, you only pay interest on £170,000. Effective for higher earners with significant liquid savings. Rates slightly higher than standard fixed products.
For a detailed comparison of fixed versus tracker mortgages — including the specific 2026 decision framework — see our fixed vs tracker guide.
Repayment vs interest-only
Interest-only residential mortgages became significantly harder to obtain following the Mortgage Market Review (MMR) in 2014. Most lenders will only offer them where the borrower has a credible, documented repayment strategy — typically a large investment portfolio, a sale plan, or significant other assets. For the vast majority of residential buyers, a repayment mortgage is the only realistic option and the right one financially.
How lenders assess affordability
Since the 2014 MMR, lenders are legally required to conduct rigorous affordability assessments — not just income multiples. The full assessment involves:
The stress test is particularly important: lenders calculate whether you could afford repayments if mortgage rates rose to 7–8%, even if the product you are applying for is at 4.2%. This is why actual borrowing capacity is often below the theoretical income multiple — the stress test catches buyers who pass the income multiple but would struggle under a rate shock.
The income multiple is a ceiling, not a guarantee. Two buyers on the same salary can have very different mortgage outcomes depending on their committed expenditure, credit history, and employment type. A buyer with existing car finance, student loan repayments, and a credit card balance will borrow substantially less than an identical earner with no other financial commitments.
The mortgage application process
Check your credit report, pay down excess credit card balances, avoid new credit applications, and gather 3 months' payslips, P60, and bank statements.
A broker compares the entire market, matches your profile to the right lender, and submits a single application rather than multiple direct applications that would each leave a hard credit search mark.
A soft credit check and initial assessment that confirms indicative borrowing capacity. Take this to property viewings and include it with offers. See our AIP guide.
Your broker submits the formal application with all documentation. The lender conducts a hard credit check and orders a valuation of the property.
The lender's underwriters review your application. The surveyor confirms the property is worth the purchase price. Any concerns result in further queries or conditions on the offer.
A legally binding offer to lend, typically valid for 6 months. Your solicitor receives and reviews it. Any conditions must be satisfied before funds are released at completion.
Mortgage calculators and specialist guides
Free calculators
In-depth guides
Frequently asked questions
What is the minimum deposit for a residential mortgage in 2026?
The minimum deposit for most mainstream residential lenders is 5% — a 95% LTV mortgage. The government's Mortgage Guarantee Scheme has supported lender appetite for this tier. However, 95% LTV mortgages carry significantly higher rates than products at 85–90% LTV — typically 1.2–1.8% higher in 2026, which translates to approximately £150–220/month more on a £220,000 mortgage. Buyers with a 10–15% deposit access materially better rates. For detailed deposit-to-rate comparisons, see our first-time buyer hub.
How often can I remortgage?
You can remortgage at any time, but Early Repayment Charges (ERCs) apply if you exit a fixed-rate deal before the fixed period ends — typically 1–5% of the outstanding balance. Remortgaging makes most sense at the natural end of a fixed period, when the mortgage would otherwise revert to the lender's SVR. Most mortgage brokers recommend starting the remortgage process 3–6 months before the fixed term expires — many lenders allow you to lock in a rate that far in advance without paying the ERC.
Can I get a mortgage if I am self-employed?
Yes — but self-employed applicants face additional documentation requirements. Most lenders require 2–3 years of SA302s (HMRC self-assessment summaries) or accountant's certificates confirming net profit or salary plus dividends. Lenders typically average the last 2–3 years of income rather than using the most recent year alone. If your income is growing, this averaging works against you; if it is falling, it works in your favour. Some specialist lenders are more flexible on self-employed applications — a whole-of-market broker will identify the most accommodating lenders for your specific income profile and trading history.
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✓ Editorially reviewed — all Poqet guides are checked for factual accuracy before publication and updated when UK rates or legislation change. Editorial Policy