Getting onto the property ladder is becoming increasingly difficult for first-time buyers due to the difficulty in saving for the large deposits, increasing house prices, and supply unable to meet demand. In this article, I will explain what kind of mortgages those in the NHS can access and useful tips from Tom Davies of TM Financial Solutions, Mortgage Broker, about how to maximise the likelihood of your mortgage application being accepted. I would highly recommend watching the webinar as Tom jumps in with lots of useful little bits of information that you might find extremely useful.
What is a mortgage?
A mortgage is a specific type of loan that is only supplied in order to buy a particular house that the mortgage provider accepts has fulfilled the necessary criteria. The mortgage terms can range from 10-25years with better interest rates if you can put down a larger deposit. The mortgage is secured against the property you are buying and so if you are unable to make your mortgage repayments, the house you purchase may be repossessed.
What affects your chances of securing a mortgage?
- Credit history: Lenders take a close look at your credit history to assess how risky you are to lend such a large amount of money to. Have a look at my article and associated webinar on the credit score for more information.
- Employment: Most mortgage-providers require you to be in permanent, full-time employment. However, there are options for locum doctors to use 6-12mths worth of payslips to secure a mortgage.
- Salary: The amount you are loaned is based on multiples of your salary. Different lenders set their own multiples and schemes have their own rules too. For example, the averge high street multiple is 4-4.5x your basic salary. As our salaries do not rise linearly, it may be worth waiting for when there is a large jump (e.g. from F1 to CT1/ST1) to get a higher loan amount. You can also increase the loan amount by showing 3-6mths of payslips with the enhancements from weekend/nights etc.
- Deposit: Most lenders require a deposit that is minimum, 5% of the property’s value. The higher deposit you can pay upfront, the more favourable you mortgage terms can be.
What mortgages are available to first-time buyers?
- First-time Buyer Mortgage:
These are mortgages with lower deposit requirements specifically for first-time buyers- usually 5-10%. This means they are a higher LTV.
Loan to Value (LTV): the % of the house price that the lender is loaning you
The key factors to remember:
There are additional costs to buying a home:
- Application fees
- Valuation fees
- Bank transfer fees
- Broker fees
- Early rapayment/exit fees
- The lender will check your income and expenses to make sure you can afford the repayments
- Some lenders may have additional requirements such as where the deposit comes from.
- Help to Buy Mortgage:
Help to Buy is a government scheme that can help you get a mortgage with a small deposit, at least 5%.
The salary multiple is fixed at 4.5x. This means that you can only borrow 4.5x your gross salary.
You can use Help to Buy ISA or Lifetime ISA savings toward your deposit (these pay an additional 25% bonus of the savings balance when used for this purpose). You can only get the bonus for one of these accounts so if you have both, you either use the savings from both and sacrifice one of the bonuses or you only use your Help to Buy ISA and save your Lifetime ISA for retirement.
They offer equity loans, which lend you the money you can use towards your deposit and repay later. These equity loans are interest-free for five years and can cover 20% of the purchase price (40% in London). There is a cap on the price of the house based on location and the house must be a new-build.
- Guarantor-Supported Morgage:
These allow you to buy a property with a small or even no deposit.
A family member or friend will have to agree to be named on the mortgage and to cover your repayments if you miss them. They will have to guarantee the mortgage payments with either:
Their own property, which could be repossessed if you fall behind on your repayments
Their savings, which the lender will hold in a savings account until you have paid off a percentage of your mortgage
What are the repayment structures?
There are two main types of repayment structures, one of which is very difficult to secure.
- Capital repayment: With a capital repayment mortgage, your monthly repayments are calculated so you’ll have repaid all the debt and the interest over the term you agree (eg, 25 years). It means your monthly payments both cover the interest and chip away at the actual debt, so in the end, you owe nothing.
- Interest only (difficult to secure): With an interest-only mortgage you just pay the interest during the term. For example, when the term (eg, 25 years) is up on a £150K mortgage, you would still owe £150K. You have to pay back the amount you borrowed in one lump sum at the end of the mortgage term. To secure this kind of mortgage, you would have to prove you had the funds available to pay off the capital amount at the end of the term.
What are the interest rate structures?
There are two ways in which the interest can be charged to you on your mortgage. The choice you make is based on your own impressions of risk and how important it is for your repayments to be fixed and how likely interest rates are to change.
Fixed-rate mortgages guarantee that their interest rates will not change for a set period, usually between one and five years.
Pros: you know what your mortgage is worth and if the interest goes up, you don’t lose out.
Cons: If interest rates go down, you are paying over market rates.
- Variable rate:
Variable mortgages can change their interest rate at any point, although they usually rise and fall roughly in line with the Bank of England base rate.
Tracker mortgages have variable rates that follow the Bank of England base rate exactly.e.g. Base rate + 1%
Useful information specific to healthcare professionals
- Higher mortgage multipliers: Through mortgage brokers like Tom, you can access mortgage providers who are not on the high street who provide higher multiples of salary such as 5.5-6x.
- Locum/bank staff: You can show higher affordability by showing 12 mths of payslips if you work additional locum or bank shifts. These figures can be incorporated into the salary multiple.
- Changing trusts: Normally having short contracts would prevent eligibility. Use last 3 months of payslips and P60, contracts and notification of payrise and 6mths of payslips for a better average.
- Mortgages for IMGs: Experienced brokers will understand visa restrictions. Minimum 3 year address history required but some may accept less, there are also LTV restrictions for Tier 2 visas >25% deposit.
- Link to credit score article and webinar
- Link to TM Financial Services: Tom gave his time entirely for free to speak with me during the webinar. There is no financial benefit for TheFinanceMedic or Mind the Bleep for using Tom’s services, I have included his details as I found him to be well-versed in first-time buyer and mortgages for doctors.
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