Mortgage Types & Affordability: What You Need to Know

A mortgage can feel like a new language. Fixed, tracker, LTV, affordability checks… it's a lot, and it often comes up fast once you start viewing homes.

This guide explains the main UK mortgage types, how lenders can assess affordability, and what to do if your lender values a property lower than the agreed price (a “down valuation”).

It’s written for beginners. For advice tailored to your circumstances, consider speaking to a mortgage adviser.

Key takeaways:

• Affordability isn't just salary. Lenders look at income and spending, debts, and whether you could cope if rates rise.
• A mortgage in principle helps you house-hunt confidently, but it's not a guarantee.
• A down valuation can impact how much the lender if willing to give.
• Budget beyond your deposit: tax, legal fees, surveys, mortgage fees, and moving costs.

Mortgage basics

A mortgage is a loan you use to buy a home. You usually repay it monthly over a long term (often decades). How much you can borrow depends on your deposit and the lender’s affordability assessment.

What is LTV

LTV (loan-to-value) is the percentage of the property price you borrow.

Example:

• Property price: £200,000
• Deposit: £20,000
• Mortgage: £180,000
• LTV = 90%

In general, a lower LTV can unlock better rates, because the lender is taking less risk (deals vary by lender).

Mortgage types: the main options

When people say “mortgage type”, they’re often mixing two choices:

1. How your interest rate works
2. How you repay what you borrow

Interest rate types

Fixed-rate mortgage

Your interest rate stays the same for a set period (often 2–5 years), making your payments more predictable during that time.

Variable-rate mortgages

Your rate can change, so your payments can go up or down.

• Tracker: usually moves in line with an external rate (often the Bank of England base rate) plus a set margin.
• Discount: a set discount from the lender’s SVR (standard variable rate). If the lender changes their SVR, your rate changes too.
• SVR: the lender’s default variable rate (often what you move onto after an initial deal ends).

Offset mortgage

An offset mortgage links your savings to your mortgage balance, so you may pay interest on a lower amount. It can suit some people, but it is less common and not always the cheapest option overall.

Green mortgages

Green mortgages vary by lender. Some offer incentives for energy-efficient homes, such as better rates or cashback. Always check the eligibility criteria carefully, as requirements can be specific.

Repayment types

Repayment mortgage

With a repayment mortgage, your monthly payments cover both the capital and the interest. Over time, this reduces what you owe, so the mortgage is paid off by the end of the term.

Interest-only mortgage

You pay the interest each month, but not the amount borrowed. You’ll need a clear plan to repay the full loan at the end (for example, investments or sale of the property). These are more restricted and not right for most first-time buyers.

Mortgage in principle

A mortgage in principle/agreement in principle (MIP/AIP) is an early indication from a lender of how much they might lend, based on your income and outgoings (often with a soft credit check).

It can help you:

• set a realistic budget before you fall in love with a property
• show sellers/agents you’re serious

Important: It’s not a final mortgage offer.

How lenders assess affordability

Lenders must check affordability and whether you could still repay if your circumstances changed (including interest rate changes).

What lenders usually look at

• Income (and how stable it is)
• Regular spending (bills, childcare, travel, subscriptions)
• Existing debts and credit commitments
• Credit history
• Whether you could cope if rates rose

Different lenders use different models, so results can vary.

Step-by-step: improve your affordability position

1. Check your credit file (and fix any errors)
2. List your monthly commitments honestly (car finance, credit cards, subscriptions)
3. Avoid big new borrowing right before applying
4. Save evidence of income (payslips, accounts if self-employed)
5. Build a buffer so rate rises don't tip your budget over

Down valuations: what they are and why they happen

A down valuation is when the lender’s valuer decides the property is worth less than the agreed purchase price. The lender will base lending on the valuation, not the agreed price.

This can happen for a few reasons, including:

• The property needs work (or has issues the valuer flags)
• The property is “non-standard” (construction, short lease, etc.)

What to do if your mortgage valuation comes in low

A down valuation creates a funding gap. Here are the main options.

1. Renegotiate the price: Many buyers go back to the seller and ask for a reduction.
2. Increase your deposit (cover the shortfall): You may be able to bridge the gap, but only if the overall deal still makes sense.
3. Appeal the valuation: Some lenders allow appeals, but you’ll usually need strong evidence (recent comparable sales, details the valuer missed).
4. Try a different lender: Another lender may use a different valuer or reach a different view. This can take time.
5. Walk away (before exchange): If the deal no longer works financially, the buyer can withdraw before contracts are exchanged.

Other costs to budget for

On top of your deposit and mortgage, many buyers also pay:

Property purchase tax

• Stamp Duty Land Tax (SDLT) (England & Northern Ireland)
• Land Transaction Tax (LTT) (Wales)
• Land and Buildings Transaction Tax (LBTT) (Scotland)

Keep in mind rates and thresholds can change.

Other common costs

• Conveyancing / legal fees (often higher if you’re also selling)
• Mortgage fees (product/arrangement fees, broker fees if applicable)
• Surveys and valuations
• Removal and moving costs
• Upfront home costs (repairs, furniture, overlapping bills)

If the property is leasehold, also budget for service charge and ground rent (where applicable). Want to read more on leaseholds? See our What is ‘Tenure’?.

If you want to dig deeper into how valuations work (and the risks of down valuations), check our guide Property Valuations & Surveys.