Doctors, dentists and other professionals are appealing customers for mortgage lenders and should not have significant problems securing a mortgage. But like everything, a little knowledge and some forward planning can make things easier and help you secure the best deal. What can you do to improve your credit score and clean up your outgoings? If you are a locum or self-employed doctor, how many years accounts do you need? How much deposit do you need? Can Junior doctors get a mortgage? What is an offset mortgage and who should consider one?
What types of mortgages can doctors get?
A mortgage is a loan taken out for a defined period (term) to buy either property or land. The loan is secured against the property so if you can’t pay, the mortgage lender can take back or repossess the property. A mortgage consists of the capital, which is the amount you borrow, and the interest on the capital.
Should doctors get a repayment or interest only mortgage?
Doctors can get a repayment or an interest only mortgage. For Repayment mortgages, each month you pay off a proportion of the capital and the interest for the duration of the mortgage. At the end of a repayment mortgage the amount you owe will be zero and you will own your own home.
Interest only mortgages are slightly different from repayment mortgages in that each month you only pay off a proportion of the interest and not the capital. So, although your monthly repayment amount will be lower with an interest only mortgage you will still owe the total amount borrowed at the end of the mortgage. Interest only mortgages lenders will want you to have a repayment plan in place to pay off the capital at the end of the mortgage. This repayment plan may include savings or investments.
Why might doctors consider an offset mortgage?
Offset mortgages can be useful for anyone who maintains a healthy current account balance. This may include self-employed professionals like GPs who keep tax payments due twice yearly in a bank account. The money in your account offsets your mortgage balance, so you only pay interest on the mortgage amount minus the balance of the offset account. Often, the interest rates for offset mortgages are not as competitive but for the right situation they can be a good option.
For example, you have a £300,000 offset mortgage at 3% interest. You also have £20,000 in an account to pay your tax to HMRC twice a year.
The £20,000 is subtracted from the £300,000, so you only pay interest on the balance of £280,000.
So rather than earning interest separately on the £20,000 as savings, you would instead avoid paying 3% interest on £20,000 of your mortgage debt.
The decision to use an offset mortgage requires advice from a specialist broker that understands doctors. Medics’ Money can match you to the best broker for you here.
Should doctors choose a fixed or variable rate mortgage?
On a fixed rate mortgage, the interest rate you pay on the amount borrowed is fixed for an agreed period, often 2- 5 years. The advantage of this is if interest rates change, your repayments will stay the same. On a variable rate mortgage, the interest rate varies and is often linked to the Bank of England base rate. On a variable rate mortgage, if rates change your repayment amounts change. Deciding whether to go fixed or variable depends on the options available, your own financial situation and an element of crystal ball gazing on what rates will do in future. A good mortgage broker that specialises in doctors will help you decide the best option for you.
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How much deposit do doctors mortgages need?
At the time of writing, it is possible to get a mortgage with just a 5% deposit or a Loan to Value ratio (LTV) of 95%. Loan to Value simply means the size of the loan relative to the value of the house. You will see the LTV quoted in the example mortgage comparison table below and you will notice that in general the higher deposit you have (lower LTV) the lower the interest rate. So in general, the bigger your deposit, the lower (better) the interest rate and the less you pay to borrow the money. If you are at 61% LTV it might be worth trying to find an extra 1% deposit to benefit from the improved rates available to those with a LTV of 60%.
How much can doctors borrow?
How much you can borrow and how much should you borrow are two entirely different questions! Historically lenders used a multiple of your income to calculate how much you could borrow. Nowadays it’s based on affordability and this is where some good financial hygiene can pay dividends. They will consider not just your salary but also your spending habits and debt. So it can pay to take a look at your bank statement and trim any unnecessary spending. Its also worth checking your credit score and seeing if it needs any spring cleaning. If you haven’t got a terribly good credit rating, or maybe haven’t used credit at all and therefore have a non-existent rating, there are things you can do to improve your score such as:
- Register on the electoral roll
- Pay bills on time
- Check for mistakes on your credit report
- Check for any fraudulent activity on your file
- Check to see if you are linked to another person
- Don’t have county court judgments against your name
- Don’t have high levels of existing debt
- Don’t move home a lot
This blog post provides more detail.
Your bank may not be the best place to get a good deal
Guess what? Your bank is a money-making business and most likely offers its own mortgages but unsurprisingly they won’t tell you if a rival bank or lender could offer you a better deal. So you need to shop around and compare deals. As a busy doctor, if this sounds unnecessarily onerous, don’t worry it doesn’t need to be. Simply use a whole of market independent mortgage broker specialising in doctors who will shop around on your behalf to get you the best deal.
Finding a good broker
Where’s the best place for doctors to get a mortgage? To find the best mortgage broker for doctors there’s a few things you need to understand:
- You need an independent whole of market broker
- You need a broker that specialises in doctors
- You need a trustworthy broker
The easiest way to find this is to let our unique search algorithm match you to the best broker for you. We’ve matched over 6000 of our doctor colleagues so far. But let’s assume you want to do things yourself and not use a broker.
To get the best deal you need to compare all the deals available on the market and find the best one for you. The easiest way to do this is to use an independent whole of market mortgage broker that specialises in doctors. This article tells you more benefits of using a broker. https://www.medicsmoney.co.uk/mortgages-for-doctors-broker/
What’s the difference between restricted and independent mortgage brokers?
Broadly speaking there are two types of Mortgage advisers or brokers. Restricted advisers and Independent, whole of market advisers.
Restricted advisers, most likely like your bank, only offer a restricted number of providers. Independent, whole of market advisers can search the entire market and may have access to products that aren’t available to the general public. So, by all means ask your bank what deal they can offer but be sure to compare it to the best deal that an Independent Whole of Market adviser (like those on Medics’ Money) can get you and pick the best one.
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Do I need a Mortgage adviser that specialises in doctors?
An Independent whole of market mortgage adviser that is familiar in dealing with doctors is a great place to get the best deal. In our experience brokers that are used to dealing with doctors understand the complexities of our pay and payslips and can present your income in the best possible light. They are used to dealing with the complex ways our on-call supplements and other pay is calculated and can make the process easier. It is advisable to choose a mortgage broker that has dealt with doctors in the past (most will not have). You do not want to risk a decline in the application process. A declined application may make your chances of getting a future mortgage approved worse. It can affect your credit rating and you must declare if you have been declined for a mortgage elsewhere. Specialist brokers may be able to access special mortgage deals for doctors. But how much will this service cost you? Many of the specialist medical mortgage brokers listed on Medics’ Money charge no fees and are instead paid a commission by the lender. Typically, this commission is 0.35% of the mortgage value. Some brokers charge a fixed fee which can have some advantages such as searching direct to consumer deals.
What about locum and self-employed doctors?
Applying for a mortgage is reasonably straightforward for most employed NHS doctors and dentists. But what if you are a locum? It’s great to be self-employed and to have flexible working patterns, but if these benefits stop you having a mortgage it can cause a real headache.
In the eyes of a mortgage underwriter, not all locum roles are viewed the same. They will assess each locum in different ways. For example, a mortgage underwriter will assess a salaried locum differently to a self-employed portfolio locum, working in short term roles at various practices. In general, you will need a minimum of 6 months income as a locum in order to get a mortgage. Once you have 2 – 3 years of self-employment under your belt things get much more straightforward. But not as easy as when you were in hospital service, and you just had to present 3 months’ pay slips of course!
Help for first time buyers
If you are a first-time buyer saving for a house deposit, aged between 18-40 and planning on buying a house worth less than £450,000 then a Lifetime Individual Savings Account (LISA) is worth considering. You can save up to £4,000 per year into your LISA and the government will top up this amount by 25%. Free money to help you build up a house deposit. LISA effectively replaced The Help to Buy ISA which is now closed to new applicants.
There are a variety of government back shared ownership schemes and you can read more here.