Buying your first home is one of the biggest financial milestones of your life. But if you’re a first-time buyer, the process can feel confusing — full of unfamiliar terms, different types of mortgages, and government schemes that sound similar but work differently. This guide from Area360 breaks down everything you need to know about mortgages before you start viewing properties or speaking to lenders.
A mortgage is a long-term loan from a bank or building society used to buy a property. You repay it — with interest — over a set period, typically 25 to 35 years. There are several types of mortgages available, and understanding the difference between them can help you choose the right one for your circumstances.
With a fixed-rate mortgage, your interest rate remains the same for a specific term (usually 2, 3, 5, or 10 years). This means your monthly repayments will stay consistent, making it easier to plan your budget. Fixed-rate mortgages offer stability — ideal for first-time buyers who value predictability — but if the Bank of England’s base rate falls, you won’t benefit from lower payments until your fixed period ends.
A variable-rate mortgage means your interest rate can change over time, depending on your lender’s standard variable rate (SVR). When the SVR rises, so will your repayments. When it falls, your payments may go down. These types of mortgages can be more flexible — you can often overpay or switch deals more easily — but they carry more risk.
A tracker mortgage follows (or “tracks”) the Bank of England base rate, plus a fixed percentage set by your lender. For example, if your deal is base rate +1%, and the base rate is 5.25%, your rate will be 6.25%. Tracker mortgages are transparent and fair but can fluctuate significantly as interest rates rise or fall.
A discount mortgage offers a set percentage discount on your lender’s SVR for a limited time — typically 2 or 3 years. It can start cheaper than other options, but once the discount period ends, your rate will revert to the lender’s standard rate, which may be much higher.
An offset mortgage links your savings account to your mortgage balance. Your savings effectively “offset” part of your loan, reducing the interest you pay. For example, if you owe £200,000 but have £20,000 in savings, you’ll only pay interest on £180,000. It’s a good option for those with savings they don’t need immediate access to, but interest-free savings might not be ideal for everyone.
| Feature | Fixed Rate | Flexible (Tracker/Variable/Discount) |
|---|---|---|
| Payment certainty | ✅ Yes — locked for 2/3/5/10 yrs | ❌ No — varies as rates move |
| Protection from rate rises | ✅ Yes (during fix) | ❌ No |
| Benefit from rate falls | ❌ No (until you remortgage/refix) | ✅ Yes — rate drops flow through |
| Typical initial pricing at same LTV | Often lower than tracker | Often higher than comparable fixed |
| Product fees | Common (e.g., flat fee) | Can be lower or none; varies |
| Early Repayment Charges (ERCs) | Usually tiered during fix | Often lower/shorter; some trackers none |
| Overpayments | Typically capped (~10%/yr) | Often higher caps or unlimited |
| Offset options | Less common | More common on variable/offset products |
| Best for | Budget certainty; medium/long horizon | Flexibility; short horizon; large overpayments; expecting cuts |
| Key risks | Locked in if rates fall | Payment volatility if rates rise |
| End of deal | Reverts to SVR; remortgage before expiry | Reverts to SVR; remortgage before expiry |
Your Loan-to-Value ratio (LTV) is one of the most important figures in mortgage lending. It measures how much of your property’s value you are borrowing.
Formula is quite simple:
LTV = (Mortgage Amount ÷ Property Value) × 100
Example: If you buy a £300,000 property with a £30,000 deposit, you borrow £270,000. Your LTV = (£270,000 ÷ £300,000) × 100 = 90%.
Lenders use LTV to assess risk. The higher your LTV, the smaller your deposit — and the greater the risk for the lender. To compensate, lenders charge higher interest rates for high-LTV mortgages.
Typical LTV Bands:
Why It Matters: Saving even an extra 5–10% deposit can make a significant difference. For instance, reducing your LTV from 90% to 85% can unlock lower interest rates and save you thousands over the life of your mortgage.
Your credit score tells lenders how responsible you are with borrowing. It’s based on your financial history and helps lenders predict how likely you are to repay your mortgage on time.
Lenders check your credit file using agencies like Experian, Equifax, or TransUnion, and consider several factors:
Tips to Improve Your Credit Score Before Applying:
Affordability Assessments: Even with a good score, lenders run detailed affordability checks. They’ll review your income, regular expenses (bills, childcare, subscriptions), and existing debts to ensure you can afford payments even if rates rise by 3–5%. Most lenders use a “stress test” to model this.
Getting a mortgage isn’t free — there are several fees and costs to be aware of. Some are upfront, others are added to your mortgage balance, but all can affect the total cost of borrowing.
Also known as a product or completion fee, this is charged by the lender for setting up your mortgage. It can range from £500 to £2,000. You can pay it upfront or add it to your loan (but you’ll pay interest on it if you do).
A smaller, non-refundable fee (typically £99–£250) paid when you apply for a specific mortgage deal. It secures the rate while your application is processed.
The lender will value the property to ensure it’s worth the amount you’re borrowing. Some lenders include this for free; others charge between £150 and £1,500, depending on property value.
If you use a mortgage broker to find the best deal, they may charge a flat fee (around £300–£600) or a percentage of the loan. Some brokers are fee-free and receive commission from lenders instead.
You’ll need a solicitor or conveyancer to handle the legal side of the purchase. Expect to pay £800–£1,500, depending on complexity. Some lenders offer cashback to offset this cost.
If you repay or switch your mortgage during a fixed or discount period, you may face an ERC — usually between 1–5% of the outstanding balance.
Some lenders charge a small fee (around £50–£300) when you fully repay your mortgage or move to another lender.
Understanding these costs upfront helps you compare deals properly — the mortgage with the lowest interest rate isn’t always the cheapest overall.
Getting onto the property ladder is hard, especially with rising prices and living costs. Thankfully, several government-backed schemes are designed to help first-time buyers.
Before you contact a lender or broker, take time to prepare. Here’s what to do:
Mortgages may seem intimidating, but once you understand the basics — from fixed vs. variable rates to how LTV, fees, and credit score affect your deal — the process becomes much clearer. The key is preparation: build your deposit, keep your finances in order, and explore all available schemes.