Understanding UK Mortgages: A Complete Guide (2026)
A £300,000 repayment mortgage at 5.6% over 25 years costs £1,860 a month. Over the full term that adds up to £558,066, of which £258,066 is interest. The interest bill is nearly as large as the loan.
Small changes in the rate move that total a long way. On the same £300,000, one extra percentage point costs about £55,000 more over 25 years. The calculator above shows the effect for your own loan, and this guide explains what sits behind the numbers. The examples use 5.6% because that is close to the average five-year fixed rate at 90% loan to value on 3 October 2026.
How Is Mortgage Interest Calculated in the UK?
UK mortgage interest is charged monthly on whatever you currently owe, not on the original loan:
Take a £200,000 balance at 5.6%. The first month's interest is £200,000 × 0.056 ÷ 12 = £933. On a 25-year repayment mortgage the monthly payment is about £1,240, so £933 goes to interest and the remaining £307 reduces the capital. The next month's interest is charged on the slightly smaller balance, so a little more goes to capital, and so on. That is why early payments are mostly interest.
How Much Does a Mortgage Cost Per Month?
These are the costs of different loan sizes on a repayment mortgage at 5.6% over 25 years. Use them as a quick check before running your exact figures above.
| Loan amount | Monthly payment | Total interest (25 yrs) | Total repaid |
|---|---|---|---|
| £30,000 | £186 | £25,807 | £55,807 |
| £50,000 | £310 | £43,011 | £93,011 |
| £100,000 | £620 | £86,022 | £186,022 |
| £150,000 | £930 | £129,033 | £279,033 |
| £200,000 | £1,240 | £172,044 | £372,044 |
| £250,000 | £1,550 | £215,055 | £465,055 |
| £300,000 | £1,860 | £258,066 | £558,066 |
At this rate the total interest is about 86% of the loan. Shortening the term or overpaying reduces it sharply.
What Happens to My Mortgage if Interest Rates Change?
On a fixed rate, nothing changes until the fix ends. On a tracker or variable rate, the payment moves when the rate does. This is the effect of different rates on a £200,000 mortgage over 25 years:
| Interest rate | Monthly payment | Change vs 5.6% |
|---|---|---|
| 4.0% | £1,056 | −£184/mo |
| 4.5% | £1,112 | −£128/mo |
| 5.0% | £1,169 | −£71/mo |
| 5.6% | £1,240 | no change |
| 6.0% | £1,289 | +£48/mo |
| 6.5% | £1,350 | +£110/mo |
| 7.0% | £1,414 | +£173/mo |
Anyone whose fix was taken at 4.5% and ends now is looking at roughly £128 a month more on every £200,000 borrowed. Model your own new rate in the calculator before the fix ends.
How Much of Your Mortgage Do You Pay Off in 5 Years?
Less than most people expect. On a £200,000 repayment mortgage over 25 years at 5.6%, after five years you will have paid about £74,400, but the balance falls by only around £21,200, leaving roughly £178,800 owing. The other £53,200 was interest.
Why Overpaying Early Is Worth More
In the first year of a £300,000 mortgage at 5.6%, about 75% of what you pay is interest and only £5,667 comes off the balance. This is not a trick. It follows directly from interest being charged on a balance that starts large and falls slowly.
It does mean the timing of an overpayment matters. On that £300,000 loan, overpaying £200 a month from the first payment saves about £54,500 of interest and clears the mortgage roughly four and a half years early. Starting the same £200 a month in year ten saves about £19,700. Each early pound stops interest being charged on it for longer.
Check your mortgage terms before you overpay. Many fixed-rate deals limit how much you can overpay each year without an early repayment charge.
Repayment vs Interest-Only
Repayment mortgage
Each payment covers the interest and a share of the capital. At the end of the term the loan is fully repaid and you own the property outright. This is the standard choice for a home you live in.
Interest-only mortgage
You pay only the interest, so the balance never falls. Monthly payments are lower, but at the end of the term you still owe the full amount and need a credible way to repay it. Interest-only is now mostly used by landlords.
- Repayment: £1,860 a month, £558,066 in total, and nothing owed after 25 years
- Interest-only: £1,400 a month, and you still owe £300,000 at the end
UK Mortgage Rates in October 2026
Average fixed rates on 3 October 2026, from Rightmove's mortgage tracker. The data comes from Podium and covers about 95% of the mortgage market, based on products with a fee of around £999.
| Loan to value | Deposit | Average 2-year fix | Average 5-year fix |
|---|---|---|---|
| 95% | 5% | 6.06% | 6.02% |
| 90% | 10% | 5.68% | 5.63% |
| 85% | 15% | 5.50% | 5.48% |
| 75% | 25% | 5.43% | 5.40% |
| 60% | 40% | 5.15% | 5.11% |
Across all loan-to-value bands the average two-year fix was 5.56% and the average five-year fix 5.53%. The Bank of England's Bank Rate has been 3.75% since 18 December 2025.
How Much Can I Borrow?
There is no single multiple that applies to everyone. Lenders must assess affordability from your income after tax and National Insurance, set against your committed spending and basic living costs. That rule comes from the Financial Conduct Authority's mortgage conduct rules.
The Bank of England's Financial Policy Committee also limits how much lending can be done at high multiples: lenders should make no more than 15% of their new residential mortgage loans at or above 4.5 times income. In practice that makes 4.5 times a common ceiling, with some lending above it for stronger applicants.
- £30,000 income: £135,000 at 4.5 times
- £50,000 income: £225,000 at 4.5 times
- £75,000 income: £337,500 at 4.5 times
- £100,000 income: £450,000 at 4.5 times
These are ceilings, not offers. Existing debts, dependants and a student loan deduction all reduce what a lender will actually agree. Joint applications are assessed on combined income.
What Actually Lowers Your Rate
1. A bigger deposit. The table above shows the pattern: the largest single step is from a 5% deposit to a 10% deposit, worth 0.39 percentage points on a five-year fix. On a £350,000 home, the monthly payment falls from £2,146 with 5% down to £1,959 with 10% down, and to £1,596 with 25% down. Part of that is the lower rate and part is simply borrowing less.
2. Comparing the total cost, not the rate. A low rate with a large product fee can cost more than a higher rate with none. Add the fee to the interest you will pay over the fixed period and compare that figure.
3. A clean credit file. Check your report with all three UK credit reference agencies (Experian, Equifax and TransUnion) well before applying, and get any errors corrected. Avoid taking on new credit in the months before an application.
4. Choosing the fix length deliberately. At the moment two-year and five-year averages are within a few hundredths of a point of each other, so the choice is about certainty, not price. A five-year fix protects you for longer and locks you in for longer.
5. Asking a broker what they charge. A broker can search more of the market than you can alone. Some charge you a fee and some are paid only by the lender, so ask at the start.
Sources: Rightmove mortgage tracker, 3 October 2026, for all average rates; Bank of England for Bank Rate; FCA Handbook, MCOB 11.6 for the affordability assessment; Bank of England policy statement PS11/25, 8 July 2025, for the Financial Policy Committee's loan to income flow limit. Payment figures use the standard repayment formula and hold the quoted rate for the full term. Last reviewed 4 October 2026.