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Mortgages and buying your first home — from deposit to remortgage

Saving a deposit with a Lifetime ISA, stamp duty for 2026/27, fixed vs tracker, fees vs rate, remortgaging and ERCs, and whether to overpay or invest.

The biggest financial decision most people make

For most households, a mortgage is the largest debt they’ll ever take on and the house it buys is their largest asset. It’s also the decision with the least practice: you might do it two or three times in your life, against brokers, lenders and estate agents who do it every day. The good news is that the parts that really cost money are few, and you can learn them. They are the size of your deposit, the stamp duty bill, the type of deal you pick, and what you do each time that deal ends.

Figures below are for the 2026/27 tax year and for England and Northern Ireland unless stated; Scotland and Wales have their own property taxes, covered briefly below. This is general information rather than advice. A good whole-of-market broker is worth talking to before you apply.

Saving the deposit

Your deposit sets your loan-to-value (LTV), the share of the price you borrow, and LTV sets your rate. Lenders price in bands. A 95% mortgage (5% deposit) is available, and the government’s Freedom to Buy guarantee keeps lenders offering it. But it costs noticeably more than a 90% one, and rates keep stepping down at 85%, 75% and 60%. Getting just under a band boundary can be worth more than a slightly bigger house.

Deposit money usually has a horizon of one to five years, which makes it short-term money. A stock-market fall the month before you exchange can wipe out a year of saving, so most deposit savers should use cash or cash-like homes rather than equities. The emergency fund guide covers the best places for cash, and gilts and money market funds help if the pot is large.

The Lifetime ISA

For first-time buyers aged 18–39, the Lifetime ISA (LISA) is the single best deposit-saving tool there is:

Know the two catches before you open one:

The 25% withdrawal charge. If you take money out for anything other than a first home or reaching 60 (or terminal illness), the charge is 25% of the withdrawal, not just the bonus. Pay in £1,000, get £250 bonus, withdraw £1,250, and the charge is £312.50. You get back £937.50, which is less than you put in. The charge takes back the bonus and 6.25% of your own money.

The £450,000 cap has never risen. It was set in 2017 and house prices have moved on a long way since. If the home you end up buying costs even £1 over £450,000, the LISA can’t be used for it penalty-free. You’d either pay the 25% charge to get the money out or leave it invested until 60. In London and parts of the South East that’s a real risk, so look at realistic prices where you want to buy before you commit.

The government has said it wants to replace the LISA with a simpler first-time-buyer product. Existing accounts are expected to carry on, but check the current rules before you open a new one. Older Help to Buy ISAs (closed to new savers since 2019) can still be used: you must stop paying in and close the account by November 2029 and claim the bonus by December 2030. You can’t use the bonuses from both a Help to Buy ISA and a LISA on the same purchase.

How much can you borrow?

Lenders typically lend around 4 to 4.5 times household income. Some go to 5 or 5.5 times for higher earners or certain professions. What they actually lend is decided by an affordability check: your outgoings, debts, childcare costs and (if you have one) your student loan repayments all reduce it, and lenders test whether you could still pay if rates went up. The maximum they’ll offer is not a target. Work out the monthly payment you could carry comfortably if your rate rose by two or three points when the deal ends, and borrow to that.

Repayment or interest-only. On a repayment mortgage, each monthly payment covers the interest and pays off some of the loan, so after the term you owe nothing. On an interest-only mortgage you pay just the interest and still owe the full amount at the end, so you need a credible separate plan to repay it. Almost every first-time buyer should be on repayment.

Longer terms (30 to 35 years, and sometimes 40) cut the monthly payment but add a lot of total interest. At 4.5%, borrowing £250,000 over 25 years costs about £1,390 a month and about £167,000 in total interest. Over 35 years it costs about £1,180 a month, but the total interest rises to about £246,000. A long term can be a sensible starting point if you plan to overpay later, but it’s an expensive place to stay.

Stamp duty in 2026/27

Stamp Duty Land Tax (SDLT) is charged in slices, like income tax: each rate applies only to the part of the price inside its band.

Price band Standard rate First-time buyer rate
Up to £125,000 0% 0%
£125,001 – £250,000 2% 0%
£250,001 – £300,000 5% 0%
£300,001 – £500,000 5% 5%
£500,001 – £925,000 5% no relief (standard rates apply to the whole price)
£925,001 – £1.5 million 10% —
Over £1.5 million 12% —

Worked examples:

First-time buyer relief only applies if every buyer is a first-time buyer. If one of you has owned a home before, even abroad or years ago, the purchase pays standard rates. Buying a second property while keeping the first adds a 5% surcharge on the whole price. Non-UK residents pay a further 2%.

Scotland and Wales have their own taxes. Scotland’s LBTT charges nothing up to £145,000 (£175,000 for first-time buyers) and then 2%, 5%, 10% and 12% at £250,000, £325,000 and £750,000. Wales’s LTT charges nothing up to £225,000, then 6%, 7.5%, 10% and 12% above £400,000, £750,000 and £1.5 million. It has no first-time buyer relief.

The other costs of buying

Stamp duty is the biggest cost, but there are others. Budget for conveyancing (often £1,500 to £2,500 including searches), a survey (£400 to £1,500 depending on the level), mortgage arrangement fees (below), possibly a broker fee, moving costs, and buildings insurance, which you need from exchange. For a leasehold flat, also check the ground rent, service charge and how many years are left on the lease. Lenders get nervous below about 80 years, and extending a lease gets expensive below that point.

Fixed, tracker or variable?

No type is right for everyone. A two-year fix gives you a chance to move to a better LTV band soon, after two years of repayments and any rise in house prices. A five-year fix gives you longer certainty and fewer fees, but you lose more flexibility if you move or want to overpay heavily. Base the choice on how much a rise in payments would hurt you, not on a guess about where rates are heading. Nobody, lenders included, predicts rates reliably.

Product fees versus the rate

Lenders often offer the same product in two versions: a lower rate with an arrangement fee (commonly £999 to £1,999) and a higher rate with no fee. The headline rate tells you nothing on its own. Compare the total cost over the deal period.

A rough rule: every 0.1% of rate costs about 0.1% of the loan each year. Compare a 4.2% deal with a £999 fee and a 4.5% deal with no fee, both over two years:

The smaller the loan and the shorter the deal, the more likely the no-fee option wins. Also watch whether the fee is added to the loan. If it is, you pay interest on it for the whole term unless you pay it off. Other lenders’ “free valuation” or “cashback” offers count too: include them in the total.

When the deal ends: remortgaging and ERCs

The most expensive mistake mortgage holders make is doing nothing when a fixed deal ends. You move onto the SVR, which is often 2 to 3 points higher, and on a £200,000 balance that can easily mean £300 to £500 a month more.

Early repayment charges (ERCs) apply if you leave a deal early or overpay more than it allows. They’re usually a percentage of the balance that falls each year: something like 5%, 4%, 3%, 2%, 1% across a five-year fix. On a £200,000 balance, 3% is £6,000, so an ERC can easily wipe out the saving from switching to a cheaper rate partway through. Moving house mid-deal? Most mortgages can be ported, meaning you take the existing deal to the new property and avoid the ERC. You still need to pass the lender’s checks again, and any extra borrowing will be at a different rate.

Overpaying or investing?

Most deals let you overpay up to 10% of the balance each year without an ERC (check yours). Every pound you overpay earns a guaranteed, tax-free return equal to your mortgage rate, because it’s interest you no longer pay. Investing that pound instead might earn more, but the return isn’t guaranteed, and outside a wrapper it can be taxed.

What decides it:

The overpay-or-invest calculator runs the comparison for your balance, rate, tax band and timeline, including the break-even investment return. Many people sensibly split the difference: they overpay enough to reach the next LTV band and invest the rest.

The one-line summary

Save the deposit in cash (in a LISA if you qualify and the £450,000 cap won’t catch you), aim for the next LTV band, compare deals on total cost rather than headline rate, put a reminder in your diary six months before every deal ends, and treat overpaying as a guaranteed return to weigh against your pension and ISA, not as a default.

Last reviewed: October 2026.