Mortgages

Mortgages: renting money to buy a house

Q: How much deposit do I need for a house UK?

Mortgages exist from 5% down, but rates improve in steps as the deposit grows, especially at 10%, 15% and 25%. On a £250,000 home, 5% is £12,500. The deposit is most first-time buyers' real obstacle.

Q: Is it better to rent or buy?

A real question, not a settled one. Buying converts rent-on-a-home into rent-on-money that ends. Renting buys flexibility and spares maintenance and lock-in. The answer depends on how long you will stay, job stability and local numbers.

Q: Why are houses so expensive in the UK?

Planning and supply are argued about, but one force is structural: most mortgage money is newly created by banks when they lend, and decades of it flowing against a slow-growing stock of houses bids prices up.

The word "mortgage" comes from old French: mort gage. Dead pledge. A promise that only dies when you have paid, or you have. Cheerful people, medieval lawyers. It is also the biggest deal of most people's lives, signed at an age when nobody has ever explained it. Let's fix that.

The short answer

A mortgage is a loan for buying a home, paid back monthly over decades, with the home itself as the bank's security: stop paying and the bank can take the house. You are renting money instead of renting a home. At today's average rates, the rent on the money can cost nearly as much as the house.

The two rents

Everyone understands renting a home: you pay every month, and at the end you own nothing. A mortgage swaps that for renting money: you borrow a huge pile of it, buy the house, and pay rent on the pile for 25 or 30 years. The rent on money is called interest, the yearly rate on the deal, and at the end you own the house.

That swap is usually worth making. But nobody should sign it without seeing the actual size of the money-rent, so here it is, at the real average rate as of this week.

What £200,000 actually costs

Take a £200,000 mortgage over 25 years at 5.24%, the average 2 year fixed rate across all lenders in late August 2026.

Standard repayment mortgage arithmetic at the average rate, 24 August 2026. Receipts below; reproduce it with any mortgage calculator.

Look at the second bar until it stops being surprising. At today's average rate, the interest over 25 years comes to about 80% of the house again. Nobody at the viewing mentions the second bar. It is not on Rightmove. But it is the real price, and every choice below is really about making that bar shorter.

The bit this site exists to tell you

Where does the £200,000 come from? By now you can answer this. The bank does not hand over two hundred thousand pounds of savers' money. As the Bank of England itself explains, and as our flagship page shows with the receipts, the money is created when the loan is made. Mortgages are the single biggest way new money enters Britain.

And remember the twist from the inflation page: money lent against things that already exist does not create anything new, it bids up the price of what is already there. Decades of mortgage lending flooding into the same houses is a large part of why the houses cost what they cost, and why your generation needs a bigger loan than your parents did for the same brick walls. You are not imagining it, and it is not because anyone bought too many coffees.

The four levers you actually control

The deposit. The share you pay upfront. Bigger deposit means the bank risks less, so it charges a lower rate: the cliff edges sit at 10%, 15% and especially 25% down. This is why the deposit, not the monthly payment, is the real wall in front of first-time buyers.

The rate, fixed for a while. Most people fix the rate for 2 or 5 years: in late August 2026 the averages are about 5.24% and 5.35%. The fix is certainty, not a discount. What matters is what happens when it ends: see the trap box.

The term. 25 years is traditional; 30 and 35 are increasingly common because they shrink the monthly payment. Look at the picture again before you smile at that: 5 extra years turns £159,195 of interest into £197,141. A longer term is renting the money for longer. It can be the right call for breathing room. It is never free.

Overpayments. The quiet superpower. Most deals let you overpay up to 10% a year without penalty, and every overpaid pound is removed from the debt for the remaining decades, killing all the interest it would ever have generated. Small, boring, devastating: the same compounding that works against you on a credit card works for you here.

Trap ahead: the SVR, the forgetting tax

When your fixed deal ends and you do nothing, you do not stay on your rate. You slide onto the lender's standard variable rate, and the average SVR right now is 7.34%, against 5.24% for an average fix. On our £200,000 example that is roughly £1,457 a month instead of £1,197: about £260 a month, every month, as a fee for not making a phone call.

The SVR is priced for people who forget. Banks earn a fortune from customers who drift onto it and stay for years. The move costs nothing: calendar the end date of any fix the day you sign it, and start comparing new deals six months before it ends. Loyalty to a bank is a one-way transaction.

The moves

Screenshot this bit, even if buying is years away

Judge any mortgage by the total, not the monthly. Rate, term, total repaid. The monthly is designed to be the comfortable number. The total is the true one.
Start the deposit boringly early. The deposit is the wall. If buying is even a distant maybe, a Lifetime ISA style scheme and automatic monthly saving beat willpower. Check the current schemes yourself when the time comes: they change.
Guard your credit file in the two years before applying. Everything on our credit scores page matters most here: electoral roll, no missed payments, no cluster of applications. Mortgage lenders read the whole file.
Never drift onto the SVR. Calendar the fix's end date on day one. Six months before, start shopping.
Overpay when you can, inside the free limit. Even £50 a month, started early, removes years and thousands from the second bar.
Rent is not "dead money" and a mortgage is not automatically winning. Renting buys flexibility; a mortgage is a leveraged bet on one asset in one postcode, plus maintenance, insurance and being unable to leave quickly. The right answer depends on your life, not on a slogan from people who sell mortgages.

Check it yourself

The average rates. Uswitch: UK mortgage rates today: 2 year fixed 5.24%, 5 year fixed 5.35%, average SVR 7.34% (75% LTV, all lenders, updated 24 August 2026). Bank of England base rate 3.75%.
Our arithmetic. Standard repayment formula on £200,000: at 5.24% over 25 years, £1,197 a month, £359,195 total. Over 30 years, £1,103 a month, £397,141 total. At the 7.34% SVR over 25 years, £1,457 a month. Any online mortgage calculator will confirm all three.
Where the £200,000 comes from. Bank of England, Money creation in the modern economy, 2014 Q1 bulletin, quoted in full on our flagship page.
Werner on mortgage lending and house prices, in his own words: interview on bank credit and property.

Questions people ask

How does a mortgage work?

You pay a deposit, usually 5% to 25% of the price, and a bank lends the rest, secured on the house. You repay monthly over a term of about 25 to 35 years. Each payment is part interest, part debt. Early on it is mostly interest; the balance shifts over the years. Stop paying and the bank can repossess the house, which is what "secured" means.

How much deposit do I need for a house UK?

Mortgages exist from 5% down, but the rate improves in steps as the deposit grows, with the big improvements at 10%, 15% and 25%. On a £250,000 home, 5% is £12,500 and 10% is £25,000. The deposit is most first-time buyers' real obstacle, which is why starting the saving early, automatically and boringly matters more than any other move on this page.

Is it better to rent or buy?

It is a real question, not a settled one. Buying converts rent-on-a-home into rent-on-money that ends, and the house is yours at the end. Renting buys flexibility and spares you maintenance, insurance and being locked to one postcode. The honest answer depends on how long you will stay, job stability and the local numbers. Anyone who answers without asking about your life is reciting a slogan.

What happens when my fixed rate ends?

You slide onto the lender's standard variable rate automatically unless you act, and the average SVR is currently 7.34% against about 5.24% for an average fix. On a £200,000 loan that is roughly £260 a month more. Calendar the end date when you sign and start comparing deals six months out.

Why are houses so expensive in the UK?

Many reasons get argued about: planning, supply, population. But one force is quietly structural: most mortgage money is newly created by banks when they lend, and decades of it flowing against a slow-growing stock of houses bids prices up. More lending, higher prices, bigger mortgages needed, more lending. That loop deserves its own page, and it is coming.