Understanding mortgages

A mortgage is money borrowed from a lender to put towards the purchase of a property. You usually pay back the loan every month with interest over an agreed period of time.

Because the money you are borrowing is secured against the property you’re purchasing, you may lose your home if you do not keep up the agreed payments on your mortgage.

Our mortgage loans are based on:

• How much we think you could afford to repay
• The value of the property you want to buy
• How much deposit, or lump sum of money, you have to put towards buying the property

A mortgage term is the length of time that you pay back your mortgage, for example, 25 years, if you were to stick with that mortgage for all that time. It’s important to understand that a term is different to a deal period in a Fixed or Tracker rate.

Your term depends on your budget and what you can afford to pay each month. You have the option to apply to change the term during its lifetime.

The longer the term, the lower your monthly payments, but you will pay more interest overall. We offer a maximum term of 40 years, or to end by your 75th birthday, whichever comes first. If you’re applying with another person who is older, the term will end by their 75th birthday.

Loan to Value (LTV) is the percentage of the property's value that’s covered by the mortgage loan.

LTV affects what interest rates are available to you. So it’s an important figure to know before you start your mortgage search. The lower the LTV, the lower the rate and monthly payments on your mortgage.

Divide the loan amount you need by the value of the property. Then multiply by 100 for the percentage.

For example, if you’re buying a property worth £200,000, and have a deposit of £20,000, you’ll need a loan of £180,000.

To find out what your LTV is, you need to divide £180,000 by £200,000.

This equals 0.9, which, when multiplied by 100, comes to 90%.

That means your LTV is 90% and your deposit is 10%.

We offer 2 types – Fixed rates and Tracker rates.

A Fixed rate is where the interest you pay on the mortgage loan stays the same for the duration of your deal period. Our typical fixed rate deal options are 2, 3, 5 and 10 years. 

Once you come to the end of your deal period, you’ll move to our Standard Mortgage Rate (SMR). Or, you have the option to switch to a new deal.

We’ll contact you before the mortgage deal period ends to confirm what the Standard Mortgage Rate will be, and give you the opportunity to look for and apply for a new deal with us.

With a tracker rate, your repayments are not fixed.

The interest rate you pay on the mortgage follows the Bank of England base rate. It means the rate can go up or down for the duration of your mortgage deal.

More on how the Bank of England affects mortgage rates

Like with our Fixed rates, when you come to the end of your deal period, we’ll contact you before you move over to our Standard Mortgage rate so you can apply to switch to a new deal with us.

For first time buyers, we only offer Capital and Interest mortgages. This means your monthly payment goes into paying back both the amount you borrowed and the interest.

As long as you keep up all your monthly payments, your mortgage will be paid off in full by the end of your mortgage term

Other lenders may be able to offer different types of repayment methods. Including interest only and part and part mortgages. Part and part mortgages are part capital repayment and part interest only.

A Decision in Principle (DIP), also called an Agreement in Principle (AIP), confirms how much we're prepared to lend you. It can be helpful when you are looking for properties, as it can give you a rough idea of the price of property you can look at. And most estate agents like you to have one to show you’re a serious buyer.

It is not a mortgage offer, so once you’ve had your offer accepted, you will still need to apply for a mortgage.

Affordable home ownership schemes are a government initiative to help people buy their own home. For more information visit our schemes page. This page deals with schemes in England. Certain schemes can differ slightly depending on where you live in the UK.

Find out more about our first time buyer mortgages and read our step-by-step first time buyers guide to help you know what happens when you buy a property for the first time.