Mortgages in the United Kingdom

Do you want to buy a house in the United Kingdom? Learn how to get a mortgage in the UK, including current rates and how much money you can borrow.

There are no restrictions on internationals obtaining mortgages in the UK, but the process of applying for and receiving a home loan can be complicated. We explain how the UK mortgage system works, including affordability considerations, rates, and taxes, to help you get on the property ladder.

Mortgages in the United Kingdom

With 13.5 million mortgages worth approximately £1.7 trillion, the UK has one of the largest mortgage markets in the world. Homeownership is more popular in the United Kingdom than in many other European countries.

Although it has declined in recent years among younger age groups, buying a home in the UK and getting a mortgage is still something that many young families plan for. In the United Kingdom, banks and building societies offer various types of mortgages. Most last about 25 years, but they can be longer or shorter.

Should you buy property in the United Kingdom?

Since the United Kingdom’s exit from the European Union on January 31, 2020, there has been uncertainty in the housing market. Housing prices fell sharply in 2021, but have since recovered in 2023. Keep in mind that the rate of price growth varies across the country, with some areas rising faster than others.

The average house price in the United Kingdom has remained relatively high, hovering around £285,861 as of May 2023.

If you decide to buy a house in the UK, there are advantages and disadvantages. Your choice is determined by your personal preferences and circumstances. Renting provides more flexibility but less stability. It is also expensive, particularly in larger cities. However, it is often a more viable move in the early stages before deciding where you want to settle.

Read more about renting versus buying in the UK for some key considerations to help you weigh your options.

Who is eligible for a mortgage in the United Kingdom?

In the United Kingdom, there are no legal restrictions on any adult obtaining a mortgage. Internationals, whether resident or non-resident, can obtain mortgages in the UK, though specific terms will vary depending on individual lenders.

Each bank or building society will have its own set of requirements, but the following are the most important:

Age

Because mortgages are essentially long-term home loans, it is more difficult for older age groups to obtain a mortgage in the UK.

Most banks and building societies will not refuse older applicants outright, but they will likely require a larger initial deposit and limit the amount of time available to repay the mortgage.

Earnings and job security

When offering mortgages, lenders must be confident that mortgage payments will be made and must calculate the risks. This may disadvantage self-employed workers and freelancers in the UK.

You must provide proof of earnings, and the amount you can borrow is determined by the amount the mortgage lender believes you can repay.

Credit Score

Your credit history will be checked, as it is with loans and other forms of credit in the UK, to determine whether you are eligible for a mortgage.

Lenders may be hesitant to grant you a mortgage if you have bad credit or a low credit score. In these cases, the best thing to do is to spend a few months trying to improve your score (e.g., paying off any outstanding debts, making sure you’re on the electoral register).

Can you get a mortgage in the UK as an international?

Expats, both resident, and non-resident, are legally permitted to purchase property and obtain a mortgage in the United Kingdom. Non-residents and non-EU/EFTA nationals, on the other hand, may find the mortgage process in the UK a little more complicated. It is much easier to obtain a mortgage in the UK if you:

  • Have lived in the UK for at least two years
  • Are you employed in the UK on a permanent basis?
  • Have a bank account in the United Kingdom

These requirements are typically in place to ensure that the applicant has a good credit history in the United Kingdom. Non-residents and those who do not meet these requirements can still obtain a non-status mortgage (also known as a self-certification mortgage) with a deposit of at least 25%.

What kinds of UK mortgages are there?

With all of the mortgage products available in the UK, first-time buyers may be overwhelmed by the variety of options. Fixed-rate mortgages and variable mortgages are the two main types of mortgages in the UK. There are also a few specialized types for various situations. Here’s a rundown of the most popular mortgages in the United Kingdom.

A mortgage with a fixed interest rate

These mortgages have fixed-rate interest rates for two or five years. At the end of the fixed-rate period, the interest rate will usually be reset to the lender’s standard variable rate. Fixed-rate mortgages are popular among UK homebuyers, accounting for approximately 75% of mortgages granted in the UK.

Because the standard variable rate can be significantly higher, homeowners frequently remortgage their property at the end of the fixed-rate period.

Lenders typically offer mortgages with terms of up to 25 years. Shorter mortgages (for example, 15 or 20 years) and longer mortgages (for example, 30 or 35 years) can also be negotiated.

A mortgage with a variable interest rate

Variable-rate mortgages are subject to fluctuation and are influenced by the general interest rate. This makes them riskier than fixed-rate mortgages in the United Kingdom, but they can be advantageous if interest rates suddenly fall.

Many variable-rate mortgages are standard variable rate (SVR), which is a rate set by individual lenders that can change at any time (for example, in response to a rise or fall in the Bank of England’s base rate).

A mortgage with a low-interest rate

This is a type of SVR mortgage but with a discount applied to the SVR for a limited time (typically 2-3 years). When looking for mortgages in the UK, you’ll need to calculate the discount as well as the lender’s SVR mortgage rate.

Mortgages with variable interest rates

These are SVR mortgages that track the interest rate from another source (typically the Bank of England). They can help you avoid a sudden increase imposed by your lender.

Mortgages with fixed interest rates

This means that the interest rate on a variable-rate mortgage is limited and cannot exceed a certain amount. Some capped-rate mortgages in the UK are only available at a higher standard rate than other variable-rate mortgages.

Mortgage offset

These mortgages are linked to your savings account, so the balance in your savings account is used to lower the interest rate on your mortgage. Offset mortgages can either reduce monthly payments or shorten the term of the loan.

Mortgages in the United Kingdom for other purposes

Mortgages are also available in the UK for purposes other than purchasing a home to live in, such as the following:

Purchasing a second or vacation home

You can obtain a second mortgage using your existing home as collateral. You can apply your equity (the value of the existing property that you have paid off) to a new loan.

For example, if your house is worth £250,000 and you still owe £150,000 on your mortgage, you have £100,000 in equity that you can use to get a second mortgage.

Homeowners may use second mortgages to raise capital for purposes other than purchasing a second home, such as home renovation.

Purchasing a rental property

You can obtain a buy-to-let mortgage, which allows you to purchase the property as an investment without having to provide the full purchase price. The mortgage and other costs are then covered by rental payments from tenants.

Many buy-to-let mortgages are interest-only, which means you only pay interest. You then pay off any remaining balance at the end of the mortgage term (e.g., 25 years), possibly by selling the property. Repayment buy-to-let mortgages are also available, but they are more expensive, necessitating higher rents.

Purchasing a commercial property

If you want to buy a commercial property in the UK, you can get a commercial mortgage. In the United Kingdom, commercial mortgages are very similar to residential mortgages. Typically, a deposit of around 25% is required.

What are the mortgage rates in the United Kingdom?

Mortgage rates in the United Kingdom are influenced by a number of factors, including:

  • The base rate of the Bank of England
  • Loan-to-value (LTV) ratio
  • Mortgage market competitiveness

Mortgage rates in the United Kingdom have been steadily rising as of July 2023, reaching their highest level since August 2008. Simultaneously, the SVR has been rising.

Check out HSBC’s current mortgage rates to get an idea of current interest rates in the UK.

Although 100% mortgages are uncommon in the United Kingdom, some no-deposit products are available. These necessitate the use of a parent or family member as a guarantor.

If you’re thinking about investing in a buy-to-let property, mortgage rates range from 5-7.5%. You must become acquainted with the various taxation rules governing property investment, including the 3% Stamp Duty Land Tax (SDLT) surcharge.

In general, buy-to-let mortgages require more stringent affordability testing. As a result, you may need a larger deposit than if you were buying a home for yourself.

How much money can you get?

The UK mortgage system views each borrower’s situation as unique. As a result, some lenders may be willing to offer you a larger loan than others. Because there are over 50 mortgage lenders in the UK, it is worthwhile to shop around for the best rates.

In general, UK mortgage lenders will consider three major factors before making you an offer:

  • Your total household income is as follows: Generally, you can borrow up to 4.5 times your annual household income (sometimes up to five times for certain professions). This is determined by your credit history. When calculating the amount they can offer, mortgage lenders consider all outgoings, including credit cards, loans, memberships, and day-to-day spending costs.
  • The property’s worth: Loan-to-value mortgage ratios for buy-to-let investors, home movers, and second mortgages typically range from 50% to 95% for first-time buyers. In general, the larger your deposit, the better the rate you can get. The critical issue, however, is how much the lender believes the property is worth. A full valuation will be performed before you are offered a mortgage.
  • The lender’s estimate of your ability to pay: This is where your unique circumstances come into play: your cash inflow/outflow records, as well as your current available assets