How Do Mortgages Work? A Beginner’s Guide to Buying Your First Home

Buying your first home is an exciting milestone but understanding how mortgages work can feel overwhelming. With unfamiliar financial terminology, different mortgage products and numerous costs to consider, it is easy to feel uncertain about where to begin.

Whether you are saving a deposit or preparing to view properties, understanding the mortgage process can help you make confident financial decisions. If you are considering speaking to a financial advisor Hove residents can access, it is worth finding someone suitably qualified to provide mortgage advice tailored to your circumstances.

This guide explains the essentials of mortgages, from deposits and interest rates to affordability assessments and applications, helping you prepare for your first property purchase.

What is a mortgage and how does it work?

A mortgage is a loan provided by a bank, building society, or other lender to help you purchase a property. Rather than paying the entire purchase price upfront, you contribute an initial amount, known as a deposit, and borrow the remaining balance.

You then repay the loan through regular monthly payments, usually over several decades.

For example, if you purchase a property for £250,000 with a £25,000 deposit, you will need a mortgage of £225,000.

The property acts as security for the loan, meaning the lender may ultimately repossess it if you fail to maintain repayments.

Most first-time buyers choose a repayment mortgage, where monthly payments cover both the interest charged and part of the original loan. Over time, this gradually reduces the outstanding mortgage balance.

Understanding deposits and loan-to-value ratios

Your deposit is the money you contribute towards purchasing your home. Many lenders offer mortgages requiring deposits of 5% or 10%, although eligibility depends on individual circumstances and the property involved.

The relationship between your deposit and mortgage amount is expressed as the loan-to-value ratio (LTV).

Consider a property costing £300,000:

A larger deposit reduces the amount you need to borrow and may provide access to a wider selection of mortgage products or more competitive interest rates.

It also gives you greater initial equity, which is the portion of the property value that you own after deducting the outstanding mortgage.

However, avoid using every penny of your savings for the deposit. Keeping money available for moving expenses and unexpected repairs is equally important.

Fixed-rate versus variable-rate mortgages

One of the most important decisions is choosing your mortgage interest rate. The interest rate represents the amount the lender charges for borrowing money, expressed as a percentage.

Fixed-rate mortgages maintain the same interest rate for an agreed introductory period, commonly two or five years. This provides predictable monthly repayments and makes household budgeting easier.

However, if market interest rates fall during that period, you will not automatically benefit from the reduction.

Variable-rate mortgages have interest rates that can change. Tracker mortgages typically follow a specified benchmark, often the Bank of England base rate, while other variable products may move according to the lender’s decisions.

This means repayments could decrease when rates fall but increase when rates rise.

When comparing products, consider arrangement fees, introductory periods, early repayment charges and the rate applicable after your initial deal ends.

How are mortgage repayments calculated?

Monthly mortgage repayments depend on several factors, including:

• The amount was borrowed.
• The mortgage interest rate.
• The repayment method.
• The length of the mortgage term.

For example, borrowing £200,000 over 25 years at an illustrative fixed interest rate of 4.5% would result in monthly capital-and-interest repayments of approximately £1,112.

This assumes the interest rate remains unchanged throughout the term and excludes additional fees.

In reality, mortgage rates may change when an introductory deal expires, affecting your future repayments.

A mortgage calculator can help you estimate payments at different interest rates and borrowing amounts before approaching a lender.

How does the mortgage term affect your payments?

The mortgage term is the period over which you agree to repay your loan, commonly between 25 and 35 years, although other terms may be available.

Choosing a longer term generally reduces your monthly repayments because the loan has been spread over the years. However, this usually increases the total interest paid.

For example, a £200,000 repayment mortgage at a constant 4.5% interest rate would cost approximately £1,112 per month over 25 years, compared with £1,013 over 30 years.

Although the longer term reduces monthly commitments, it would result in substantially more interest overall.

The right term should balance manageable monthly repayments with your longer-term financial objectives.

How do lenders assess mortgage affordability?

Before approving a mortgage, lenders assess whether you can realistically afford the repayments.

They consider your income, employment circumstances, existing debts, regular expenditure, and financial commitments.

Your credit history also matters. This records how you have managed borrowing and repayments in the past. Lenders use information from credit reference agencies alongside their own criteria rather than relying on one universal credit score.

Before applying, review your credit reports, correct inaccuracies, and avoid unnecessary borrowing.

Preparing a realistic monthly budget is particularly important for first-time buyers in Hove, where property choices and ongoing housing expenses can vary considerably.

Remember to include council tax, utility bills, insurance and, where applicable, leasehold service charges.

What happens during the mortgage application process?

Understanding the application process can make buying your first home less stressful. The main stages typically include:

1. Assess your budget: Review your income, savings, debts, and estimated monthly repayments.
2. Obtain an agreement in principle: A lender provides an indication of how much it may be willing to lend based on preliminary checks.
3. Find a suitable property: Search within your budget and make an offer when ready.
4. Submit a full application: Provide documents such as payslips, bank statements, identification and evidence of your deposit.
5. Complete lender checks: The lender assesses affordability, credit history and the property’s suitability.
6. If approved, the lender issues a formal offer setting out the borrowing terms.

An agreement in principle is not guaranteed mortgage offer. Final approval remains subject to the lender’s detailed checks and property valuation.

What additional costs should first-time buyers expect?

Your deposit is only one part of the overall cost of buying a home.

Other expenses may include conveyancing solicitor fees, property surveys, lender valuation charges, mortgage arrangement fees, removals and buildings insurance.

You should also consider Stamp Duty Land Tax (SDLT), which applies to qualifying property purchases in England.

Under the first-time buyer relief rules applicable from April 2025, eligible purchasers pay no SDLT on the first £300,000 and 5% on the portion between £300,000 and £500,000. Properties costing more than £500,000 do not qualify for this relief. Eligibility conditions apply.

For leasehold flats, ongoing service charges and ground rent obligations, where applicable, should also feature in your budget.

Common mortgage mistakes first-time buyers should avoid

A common mistake is concentrating solely on the maximum amount a lender is willing to offer.

Borrowing the maximum available may leave little flexibility for emergencies, changes in income, or increasing household expenses.

Other mistakes include overlooking mortgage product fees, failing to compare deals, making significant credit applications before applying and underestimating property maintenance costs.

It is also important to understand what happens when a fixed-rate period ends, rather than assuming that the initial monthly payment will remain unchanged.

How can a financial or mortgage adviser help?

For first-time buyers seeking professional financial guidance in Hove, speaking to a suitably qualified mortgage adviser can help simplify the borrowing process.

An adviser can assess affordability, explain mortgage products, compare suitable options from the lenders they cover, and identify potential complications before an application is submitted.

This can be particularly useful for self-employed buyers, applicants with irregular incomes, or those purchasing leasehold flats.

Before proceeding, check whether the adviser or firm is appropriately authorised through the Financial Conduct Authority’s Firm Checker or Financial Services Register. You should also establish whether they charge fees and whether their recommendations cover a broad range of lenders or a restricted selection.

Taking the next step towards your first home

Understanding how mortgages work is an essential part of preparing to buy your first property. From saving a suitable deposit to choosing a mortgage term and comparing interest rates, each decision can influence your monthly finances and long-term borrowing costs.

Start by reviewing your savings, checking your credit history, and establishing a realistic property budget. Research mortgage options carefully, account for additional purchasing expenses and avoid committing repayments that could place unnecessary pressure on your finances.

With careful preparation and guidance from a suitably qualified mortgage adviser when needed, you can approach your first home purchase with greater confidence and a clearer understanding of the financial responsibilities involved.