How to get a £200,000 mortgage

What is the average monthly cost of a £200,000 mortgage?

A £200,000 mortgage has many requirements, and understanding the monthly repayments is key to ensuring your financial position remains stable and you can keep up with payments. 

When calculating your monthly mortgage repayments, your lenders consider the amount you want to borrow, the interest rate, and the term of the loan.

While lenders may use more advanced calculations, Unbiased’s online calculator can help you determine an estimate. 

You enter the mortgage amount (£200,000), the interest rate (for example, 5%), and the period to pay off the loan (term). You can also add arrangement fees and other charges. 

The online tool will calculate your monthly mortgage repayments and the final total you will repay.

So, for example, a £200,000 mortgage over 25 years will cost you £1,170 per month. After 25 years, you will have repaid £350,882, assuming the interest rate stays the same throughout the term.

Other factors besides the interest rate and loan term may affect the cost of a mortgage, including:

• The loan to value ratio (LTV)
• Your income
• Your age
• Your credit history

The LTV refers to the ratio of the home’s value compared to the mortgage, expressed as a percentage.

A good LTV depends on having a big deposit for your mortgage. Lenders will often offer lower interest rates to clients with lower LTVs.

To calculate your LTV, subtract your deposit from the home’s value, then express the difference as a percentage.

Let’s look at two examples using a £200,000 mortgage.

Example one: Home value = £250,000. Deposit = £50,000. Mortgage required = £200,000

200,000/250,000 = 0.8 x 100 = 80% LTV

Example two: Home value = £300,000. Deposit = £100,00. Mortgage required = £200,000

200,000/300,000 = 0.667 x 100 = 66.7% LTV

The second example features a lower LTV, so the lender may offer a lower interest rate with their mortgage.

What factors affect your repayment costs?

While an online calculator can provide a ballpark figure for your monthly mortgage repayments, several factors can influence the final costs.

What mortgage are you planning to choose?

• Repayment mortgage: A repayment mortgage structures your monthly mortgage repayments as a combination of a small part of the capital and the interest. During the first few years, most of your payment will be allocated to interest and capital repayments will be minimal. In time, the opposite will happen.
• Interest-only mortgage: Buy-to-let properties usually have an interest-only mortgage, where you pay the lender the agreed interest every month. The entire capital amount is due in one lump sum payment when the term ends, so it is essential to plan for this. This type of repayment method is not typically used for traditional home loans.
• Hybrid mortgage: This increasingly popular option offers you a balanced repayment scheme by combining elements of both repayment and interest-only mortgages. During the initial period, typically ranging from 5 to 10 years, your payments cover only the interest. Then, gradually, you incorporate capital repayment for the remainder of your mortgage period. This structure provides you with a middle ground between traditional repayment and interest-only methods.

How long is the mortgage?

When purchasing a home, you can select a term of up to 40 years to pay off your mortgage.

Choosing a lengthy term, like 40 years, will make your monthly mortgage repayments lower, but you will pay far more interest than with a shorter mortgage term. 

The longer the term, the more expensive your home will be. However, this doesn’t mean it is more valuable; it just means you have paid more interest on your repayments.

What are the interest rates of your mortgage?

When you're ready to buy your forever home, it's essential to research which lenders will offer the best deal on your £200,000 mortgage.

You will be paying your mortgage for a long time, so getting the lowest interest rate possible can save you a fortune in the long run.

Building up a sizeable deposit for your home will translate to a lower LTV, which could persuade lenders to give you a favourable interest rate.

What income do you have to be on to get a £200,000 mortgage?

According to Lloyds Bank, financial institutions typically approve mortgages for amounts between 4.5 and 5.5 times your annual salary.

Therefore, to meet mortgage income requirements, you must earn between £44,000 and £50,000 per year to secure a £200,000 mortgage. 

How do I get a £200,000 mortgage?

Lenders typically require a 5%-10% deposit when you apply for a mortgage.

To secure a £200,000 mortgage, your deposit should be £10,000-£20,000. 

Once you’ve found a property, it’s time to take the following steps:

1. Complete an agreement in principle (AIP) to see if you are eligible for a £200,000 mortgage.
2. Check your credit history for outdated information and any errors, and correct them before applying for a mortgage.
3. Gather the appropriate documents, including your ID, proof of address, your last three months' payslips, bank statements for the previous three months, evidence of your deposit, and your most recent P60.
4. Once you've submitted your mortgage application, your lender will do a valuation of the property and make you an offer.
5. A conveyancer or solicitor will be necessary to process the legal side of the purchase, including the transfer of ownership and contracts.
6. Once the process is complete, the lender will release the money to finalise the purchase.

Do you need advice from a mortgage broker?

Using a mortgage broker is not a requirement when buying a house.

Still, it is beneficial, especially for those buying their first home.

A broker can smoothly guide you through the mortgage application and homebuying journey, offer advice, and secure the right mortgage, as they have access to a range of products and services.

Seek expert financial advice

If you’ve found your dream home but need a £200,000 mortgage, you need to answer financial questions about income requirements, monthly repayments, and whether you can afford the property long-term.

Then there’s the mortgage application process, which can also be complicated. 

Let Unbiased match you with an expert mortgage broker who can offer financial advice that ensures you make the right decisions when buying your home.