How Does a Mortgage Work? A First-Time Buyer Guide for Wales

If you’re thinking about buying a home and wondering “how does a mortgage actually work?”, you’re not alone.

Most people in Wales will need a mortgage to buy, whether it’s their first home or a next move. This guide explains:

• What a mortgage is

• The main types of mortgage

• How lenders decide what to offer you

• How Welsh Government schemes like Help to Buy – Wales and Shared Ownership – Wales can help

Our first, and probably most important tip: speak to a mortgage adviser early.

A good adviser can:

• Explain the whole process in plain English

• Check what you’re likely to be able to borrow

• Match you with a lender and product that actually fits your situation

At Martin & Co, we are partnered with and an introducer for Homes Made Simple an experienced, independent mortgage adviser who are personal, fast, efficient and used to working with first-time buyers in Wales.

1. What is a mortgage?

A mortgage is a loan that’s secured against a property.

• You put in a deposit

• A lender (bank or building society) lends you the rest

• The house or flat is the security for that loan

Because the loan is secured, the lender has certain legal rights over the property.If you don’t keep up the repayments, they can ultimately take possession and sell the property to recover their money.

2. How does a mortgage work in practice?

At a basic level, every mortgage has:

• Loan amount – how much you’re borrowing

• Term – how long you’re borrowing it for (e.g. 25, 30, 35 years)

• Interest rate – the cost of borrowing the money

• Repayment structure – how you pay it back (repayment vs interest-only)

Most first-time buyers in Wales will have a repayment mortgage (see next section) on a fixed rate for a number of years.

You can find a mortgage by:

• Going directly to your bank

• Using comparison sites

• Or (better) via a whole-of-market mortgage adviser, who can search across many lenders and products for you

A broker will also help you understand what you can do to improve your chances of approval before you apply.

3. What information will a lender look at?

Lenders are legally required to check that you can afford your mortgage now and if things change in future (for example, if rates rise).

They will usually assess:

• Income – salary, bonuses, benefits, self-employed profits, etc.

• Monthly outgoings – loans, cards, childcare, car finance, subscriptions, etc.

• Credit history – how you’ve managed borrowing in the past

• Deposit and property price – which determines your loan-to-value (LTV)

There are different criteria for:

• Employed vs self-employed

• Sole vs joint applications

• People with past credit issues

But the underlying question is always:

“Can this person realistically and consistently afford the mortgage?”

You’ll need to be ready to fully disclose your finances to the lender or adviser so they can give you an accurate picture of what you can borrow.

4. Repayment vs interest-only mortgages

There are two main ways a mortgage can be structured:

Repayment mortgage (capital + interest)

This is what most first-time buyers in Wales use.

• Each month you pay:

  • Interest on what you owe

  • Plus some of the capital (the amount you borrowed)

• Over time, your balance gradually reduces

• If you make all payments for the full term, the mortgage is fully repaid

This is usually the safest structure for homebuyers.

Interest-only mortgage

With interest-only:

• Your monthly payment covers interest only

• You don’t reduce the actual loan amount

• At the end of the term, you still owe the full capital and must repay it somehow

You need a clear, credible repayment vehicle (investments, sale of another property, etc.), and lenders are much stricter about who they’ll allow on interest-only because of the risk.

For most first-time buyers, a repayment mortgage is the right starting point.

5. Types of mortgage interest rates

Beyond how you repay, you also need to choose how the interest rate behaves over time.

Variable rate mortgage

• Your interest rate can go up or down

• It usually moves in line with wider economic conditions and the lender’s own pricing

• When rates are low (and expected to stay low), some buyers choose variable – but you must be comfortable with the risk of payments increasing

Fixed-rate mortgage

• Your interest rate is locked in for a set period (e.g. 2, 3, 5 or 10 years)

• Your monthly payment stays the same during that fixed period

• Popular with first-time buyers because it’s easier to budget

Many people fix for a few years and then remortgage to a new deal when the fixed period ends.

Tracker mortgage

• A type of variable mortgage that follows the Bank of England base rate (e.g. base rate + 1.5%)

• If base rate goes up or down, so does your payment

• You’re directly exposed to interest rate changes – which can be good or bad depending on what happens in the market

Capped-rate mortgage

• A variable mortgage with a maximum “cap” on the interest rate

• Your payments can move up and down, but not beyond a certain level

• Gives some protection if you’re worried about rates jumping too high

Discounted-rate mortgage

• A variable mortgage where you pay the lender’s standard variable rate (SVR) minus a discount for a set period

• For example, SVR 7% with a 2% discount means you pay 5%

• Your rate still moves with the lender’s SVR – the discount is what’s fixed

Offset mortgage

• Links your savings to your mortgage

• You don’t earn interest on your savings, but you also don’t pay interest on the equivalent portion of your mortgage

• Example: £300,000 mortgage and £30,000 savings offset → you only pay interest as if you owed £270,000

• More flexible, but best suited where you have meaningful savings and good financial discipline

6. How much interest will I pay?

The interest rate ultimately decides how much you’ll repay on top of the original loan over time.

Lenders typically set their mortgage rates relative to:

• The Bank of England base rate, and

• Their own funding costs and risk appetite

Your personal rate depends on factors like:

• LTV (bigger deposit = lower rate, usually)

• Credit profile

• Product type (short vs long fix, variable, etc.)

Because rates can change, you should always consider:

• What happens when a fixed rate ends and you move to the lender’s SVR

• Whether you can still afford the mortgage if rates rise

A broker can compare the total cost of different deals (rate + fees) rather than just the headline rate.

7. Getting help from family – gifted deposits & guarantor options

With property prices and living costs where they are, many first-time buyers receive help from family.

Gifted deposits

A family member gives you money towards your deposit with no expectation of repayment.

• Lenders normally require a gifted deposit letter, confirming it’s a gift, not a loan, and that the family member has no claim over the property.

• This can boost your deposit, lower your LTV, and open up better rates.

Clear communication within the family is key so there are no misunderstandings later.

Family-assisted / guarantor-style mortgages

Some lenders offer products where:

• A family member guarantees part of the loan or

• Uses their savings as security

This can help where your income is sufficient but deposit is limited. The exact structure varies by lender, so this is one to explore with an adviser.

8. Government help in Wales – Help to Buy – Wales & Shared Ownership – Wales

Because prices have risen faster than many incomes, the Welsh Government has schemes designed to help people who can afford monthly payments but struggle with deposits.

Help to Buy – Wales (shared equity loan)

Help to Buy – Wales is a shared equity loan scheme that helps first-time buyers and existing homeowners buy a new-build home in Wales. GOV.WALES+1

Key features (at time of writing):

• You provide a minimum 5% deposit

• The Welsh Government provides an equity loan of up to 20% of the purchase price

• You then take a repayment mortgage for the remaining amount (up to 75%)

• Maximum purchase price: £300,000

• The home must usually have a minimum EPC rating of B and be from a registered Help to Buy – Wales builder GOV.WALES+2stmodwenhomes.co.uk+2

The equity loan is normally:

• Interest-free for the first 5 years, then

• A fee becomes payable each year after that (linked to inflation)

Help to Buy – Wales is currently available until at least September 2026, with completions allowed beyond that under the latest extension. llanmoor-homes.com+1

Note: The Help to Buy: Equity Loan in England has ended, but the Welsh scheme remains open at the time of writing. GOV.UK

Shared Ownership – Wales

Shared Ownership – Wales is another Welsh Government scheme for people who can’t afford to buy 100% of a property outright. GOV.WALES+1

• You buy a share of a home (for example 25–75%)

• You pay rent on the remaining share to a housing association

• You can usually buy further shares over time (“staircasing”) if your circumstances improve

This can reduce the deposit and mortgage needed to get started.

Because criteria and details can change, it’s important to check the latest Welsh Government guidance or speak with a mortgage adviser who works with these schemes regularly.

9. Where the Mortgage Calculator fits in

Before you commit to anything, it makes sense to sanity-check:

• What your monthly payments might look like

• How different deposits, terms and rates change the numbers

Use our Mortgage Calculator to estimate:

• Monthly repayments

• Impact of different rates and terms

• Whether a property you’re looking at is likely to be affordable

Remember: this is a guide only – a full affordability assessment with a lender or adviser is always needed.

Figures from any calculator are for illustration only and do not constitute advice or an offer.

10. Need help working it all through?

Mortgages, schemes, rates, terms, LTVs – it’s a lot to juggle on your own.

At Martin & Co, we help first-time buyers and movers in Wales to:

• Understand how mortgages work in the real world

• Check what they can realistically afford

• Explore Help to Buy – Wales and Shared Ownership – Wales, where suitable

• Compare products from multiple lenders to find a good fit, not just a headline rate

Schedule a free, no-obligation call with our Mortgage Adviser We’ll walk you through your options, explain the jargon, and help you take the next step with confidence.

Your home may be repossessed if you do not keep up repayments on your mortgage.