Guide · 5 minute read · Updated 10 Jul 2026

How does a mortgage actually work? A UK beginner's guide

A mortgage is a long-term loan to buy property, secured against that property. You put down a deposit, borrow the rest, and repay it with interest over many years. If you stop paying, the lender can ultimately take the home. Everything else is detail on top of those few facts.

Deposit, loan and loan-to-value

You rarely borrow the full price. You put in a deposit, usually at least 5% to 10% of the property value, and the mortgage covers the rest. On a £250,000 home with a £25,000 deposit, you borrow £225,000.

The relationship between the loan and the value is the loan-to-value, or LTV. Borrowing £225,000 against £250,000 is a 90% LTV. This number matters more than almost anything else, because lenders price by it: a bigger deposit means a lower LTV, which means access to cheaper rates. Our guide to loan-to-value goes deeper on the bands.

Capital, interest and the term

Your loan has two parts. The capital is the amount you borrowed. The interest is what the lender charges for lending it, expressed as a rate. Each monthly payment chips away at both.

The term is how long you have to clear the whole thing, commonly 25 to 35 years. A longer term makes each monthly payment smaller but means you pay more interest overall, because the debt hangs around longer. A shorter term costs more each month but less in total. On a £225,000 loan at 4.5%, stretching from a 25-year to a 35-year term cuts the monthly payment noticeably but adds tens of thousands in total interest over the life of the loan. The mortgage repayment calculator shows the exact trade-off for your numbers.

Rates and fixing

The interest rate can be fixed or variable. A fixed rate locks your payment for a set period, usually two or five years, so it cannot change even if the wider market moves. A variable or tracker rate can go up and down, often following the Bank of England base rate, which sits at 3.75% in mid-2026.

Crucially, a fixed deal fixes the rate for its period, not for the whole mortgage. When a two or five-year fix ends, you roll onto the lender's standard variable rate, which is usually much higher, unless you switch to a new deal. That is why remortgaging every few years is normal in the UK. Our guide on fixed, tracker or variable breaks down which type suits which borrower.

Repayment versus interest-only

On a repayment mortgage, each payment covers the interest plus a slice of the capital, so the balance falls month by month and hits zero at the end of the term. This is what almost all residential buyers have.

On an interest-only mortgage, you pay only the interest, so the payment is lower but the full capital is still owed at the end and must be repaid another way, for example from savings, investments or selling the property. Interest-only is now mostly used for buy-to-let and specific circumstances, not standard home buying, because you need a credible plan to clear the lump sum.

What happens if you miss payments

A mortgage is secured against your home, which is what makes the rate lower than an unsecured loan and also what raises the stakes. Miss payments and you go into arrears; the missed payments are reported to credit agencies and can damage your credit file for years.

If arrears build up and are not resolved, the lender can eventually seek repossession and sell the property to recover the debt. In practice this is a last resort and lenders are required to try to help first, through payment holidays, term extensions or switching to interest-only temporarily. The key move is to contact your lender early the moment you think you might struggle, because options shrink the longer you leave it.

Where to go next

Once the basics click, the practical questions are how much you can borrow and what it costs. Work out your budget with the mortgage affordability calculator, then read how much can I borrow and what is LTV to sharpen the numbers before you start viewing.

Common questions

What is the difference between capital and interest on a mortgage?

Capital is the amount you borrowed; interest is the charge the lender adds for lending it. On a repayment mortgage each monthly payment covers the interest due plus a slice of the capital, so the balance falls over time and reaches zero at the end of the term.

How long is a typical UK mortgage term?

Commonly 25 to 35 years. A longer term lowers your monthly payment but increases the total interest you pay, because the debt is outstanding for longer. A shorter term costs more each month but far less overall.

What is the difference between repayment and interest-only?

On a repayment mortgage you pay off interest and capital together, so the loan is cleared by the end of the term. On interest-only you pay just the interest, keeping payments lower, but the full amount borrowed is still owed at the end and must be repaid separately. Interest-only is now mainly used for buy-to-let.

What happens if I miss a mortgage payment?

You go into arrears, which is reported to credit agencies and can harm your credit file. If arrears are not resolved the lender can eventually repossess and sell the home, though that is a last resort. Contact your lender early, as they must try to help with options like a term extension first.

Guidance and education, not regulated financial advice.