How much can you really afford? Breaking down mortgage myths

Understanding Your Mortgage OptionsFor many first-time buyers, a mortgage is the biggest financial commitment they'll make.

No. 12627 from our magazine|2 min read| Published in Magazine on 20 August 2025 by our Marketing Team

With so many terms, figures, and options, it’s easy to get lost in the jargon. You may hear about interest rates, deposit percentages, fixed or variable terms, but what do they mean and how do they impact what you can afford?

Let’s clear up some common mortgage myths and explain key terms in a way that’s easy to understand.

How much deposit do you need?

A common misconception is that you need a hefty 20% deposit. While a 20% deposit can secure better interest rates, it’s not always necessary.

What you need to know:

Most lenders require a minimum deposit of 5% of the property’s value.

Lower deposits may mean higher monthly repayments and fewer favourable rates.

Help to Buy schemes or shared ownership can help you get on the property ladder with a smaller deposit.

Fixed vs. variable rates

Understanding the difference between fixed-rate and variable-rate mortgages is key:

Fixed-rate mortgage: Interest rate stays the same for a set period (2, 5, or 10 years), keeping monthly payments predictable.
Variable-rate mortgage: Interest rate can change over time, often in line with the Bank of England base rate or lender’s standard variable rate (SVR).

What you need to know:

Fixed-rate mortgages offer stability but may increase after the term ends.

Variable-rate mortgages often start lower, but payments can rise if rates increase.

The term of your mortgage

The term refers to how long you’ll repay your mortgage, commonly 25 years.

What you need to know:

Longer terms (30+ years) lower monthly payments but increase total interest.

Shorter terms (15 years or less) mean higher monthly payments but less interest overall.

Your loan-to-value (LTV) ratio

LTV is the loan amount compared to the property value. For example, buying a £200,000 property with a £40,000 deposit results in an 80% LTV.

What you need to know:

Lower LTVs can secure better interest rates.

Higher LTVs (e.g., 95%) may lead to higher rates and repayments.

The importance of affordability checks

Lenders assess not just how much you can borrow, but whether you can afford repayments, even if rates rise.

What you need to know:

Lenders review income, outgoings, and credit score.

They consider financial buffers for unexpected costs like job loss or interest rate increases.

Additional costs to consider

Beyond the deposit, remember:

Stamp duty (tax based on property price; exemptions may apply for first-time buyers).
Legal fees (£500–£1,500) for conveyancing services.
Survey fees (£300–£1,500) to assess property condition.

How much can you afford?

Buying a home involves more than just mortgage repayments. Factor in deposit, mortgage terms, additional costs, and future financial stability to determine what you can afford.

Understanding your mortgage options and breaking down the jargon is key to making informed, confident decisions when purchasing your new home.