How does a fixed rate mortgage work?

Thinking about getting a mortgage and want to keep your monthly payments steady? A fixed-rate mortgage might be just what you need! With this type of mortgage, monthly repayments stay the same for a set period, typically 2, 5, or even 10 years. This means that your payments won't change during the fixed term.

It's a popular choice among UK homeowners because it offers predictability and helps with budgeting. However, it's important to remember that if interest rates fall during your fixed term, you won't benefit from lower payments. Additionally, fixed-rate mortgages may come with higher initial rates compared to variable-rate options, and there might be limits on how much you can overpay annually.

When your fixed-rate period ends, your mortgage typically reverts to your lender's standard variable rate (SVR), which could be higher. To avoid unexpected increases in your monthly payments, it's a good idea to talk to your existing lender and start exploring remortgage deals a few months before your fixed term ends. This proactive approach can help you achieve a better rate and maintain financial stability.

Are you eligible for a fixed rate mortgage?

To be eligible for any type of mortgage you will need to meet the lender’s eligibility and affordability criteria. The rules do vary between lenders, but here’s what they’ll check:

Your income

Lenders will look at what you earn when deciding how much to lend. Typically, you can borrow up to four and a half times your annual income, or combined annual income if applying for a joint mortgage. Some providers may offer you more, so comparing is essential.

Affordability

You'll need to demonstrate that you can comfortably afford all your mortgage payments, in addition to your other financial commitments like any existing borrowing, utilities and childcare, for example.​

Credit history

Whilst there isn’t a specific credit score required for a mortgage, having a higher score can boost your chances of being approved. It might be worth checking to see if there is anything you can do to improve your report before you apply for a mortgage.

Every lender’s a bit different, so it’s very important to compare your options to find the right fit for your situation. One more thing… your property could be repossessed if you don’t keep up repayments on your mortgage, so make sure you’re comfortable with what you can afford before taking the plunge.

How much can I borrow with a mortgage?

Many mortgage lenders offer up to around 4.5 times your annual earnings, though some may allow you to borrow more. Going off that figure, if you earn £50,000, you might be able to borrow up to £225,000. If you apply jointly with someone earning £30,000, that total could rise to £360,000.

Just bear in mind that your final offer will depend on factors like your affordability, existing borrowing and deposit size. Income’s just part of the picture. Here’s what a lender might look at when assessing your application:

  • Monthly outgoings: Lenders will consider your regular expenses like bills, credit card payments and childcare costs to make sure the mortgage is affordable for you both.

  • Affordability stress tests: Lenders will check if you could afford your mortgage if interest rates rise. If you’re borrowing more for things like home improvements, lenders will also want to ensure you can handle the increased payments.

  • Cash to put down: The bigger deposit you have, the better your deal. A lower loan-to-value (LTV) ratio can help you access more competitive rates.

  • Creditworthiness: A solid credit report can really boost your chances of approval, so be sure to check it ahead of your application to see if there is anything you can do to improve your score.

What costs should I budget for when arranging a mortgage?

When applying for a mortgage, remember there are a few extra costs you’ll need to keep in mind to avoid any surprises:

  • Valuation fees: Lenders will want to know your property's value, so they'll arrange a valuation. Costs can vary, but it's wise to budget for this.​

  • Legal fees: Whether it's a solicitor or conveyancer, you'll need legal help to navigate the process.​ Legal fees for home buying are typically around £2,000 (including VAT at 20%), but the exact cost can vary depending on the property and how complex the work is.

  • Local searches: If you’re buying a property, your solicitor will also carry out local searches – usually costing £250–£300.

  • Arrangement fees: Some lenders charge a fee to set up your mortgage. Expect to pay anywhere between £1,000 to £2,000 or more. ​

  • Early repayment charges (ERCs): Planning to pay off your mortgage early? Be aware of potential ERCs, which can apply if you overpay beyond a certain limit.

  • Survey costs: If you're considering a detailed property survey, this will be an additional expense to keep in mind.​

By considering all of these costs, you can keep your mortgage process running smoothly without any unexpected financial bumps along the way.

Mortgage guides

Answering your questions about fixed rate mortgages