Dr James, 1m 43s:

Today we're here to talk about mortgages, but obviously our goal and objective is to make them at the beginning as well. Today we will focus on covering what is happening out there whenever it comes to mortgages, what we need to know whether we're about to take on a mortgage, whether we will do it at some stage, even if it's not imminent, or we already have one. I'm joined today by expert mortgage booker to dentist, Mrs. We're going to be covering all of those things and more so that you can ensure you are paying the least that you possibly can to get that dream house. As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax-efficient as possible, as well as understanding investing. All of this content counts as verifiable CPD, and you can download your certificates there and then upon completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Hi Sarah, how's it going? Good to see you again.

Speaker, 3m 5s:

Good, good, thank you.

Sarah, 3m 6s:

Good uh, yes. So, what's happening uh with rates? Well, um we're in a large year for remortgaging, a lot of people coming off two-year deals and also five-year deals. So if you're coming off a two-year deal, the rates where they're sitting at the moment are probably not that dissimilar to what you were on two years ago. They might be a little bit lower, they may be a little bit higher. Uh, it depends on what sort of deal you had two years ago, but they're about the same. The bad news is for the people of which I am one, uh, coming off a five-year deal of probably some. Well, I've even got some clients with a 0.99 uh deal that they're coming off. Uh, but yeah, your your rating you're coming off is probably starting with a one, and you're probably looking at going to a rate starting with a four. No, yeah. There are some trackers, so this is this is probably the big dilemma at the moment. Tracker rates that tracks a Bank of England base rate. Obviously, since all of the conflict in the Middle East, we haven't we haven't seen the Bank of England base rate go up, yet fixed rates have. And fixed rates probably at the moment uh are about one percent higher than what they were at the end of February. Uh so at the end of February, we could get a two-year fixed rate, for example, at around 3.64 today. That is one percent more. And that's that's with HSB C. You know, 4.64 is is the rate with HSB C today on a two-year deal. So so um tracker rates are actually looking like a good option. However, you know, it's not for the faint-hearted because if Bank of England base rate goes up by one percent, well, then you'll be paying one percent more every time the Bank of England increases their rates, you will pay that increase, or likewise, if they decrease, you will pay that decrease by typically quarter of a percent they increase or decrease them by. Um, but you know, uh when I was doing some research yesterday, I could get a 3.96 tracker, so it's 0.21 over Bank of England base rate. Uh so that's actually looking quite competitive because rates would have to go up by three quarters of a percent before it's matching that two-year fixed rate. Um so so yeah, you know, the tracker rates are an option. Um, and if you're not adverse to a bit of risk, that might be a good thing. But the the other advantage of a tracker at the moment is most lenders, but just be careful of that when you when you are looking or getting your broker to, is um most of them don't have early redemption charges. So if rates do start going up and you're getting a bit nervous and you want to look in a fixed rate, you you can do without any early repayment charges. But there are some lenders that have tracker rates with an early repayment charge, so you you would incur that fee. So I would always suggest if you're doing a tracker, make sure you have no early repayment charges. Um, so so that's that's it on the sort of rights. Um other things that are going on. We could have some FDs, people finishing their foundation year or years going into associate positions, sorting those out from um August, September time. Um do you need to have two years accounts to be able to get a mortgage? Um because obviously you'll be going self-employed. No, you don't. We can work off three months, three months pay schedules, invoices, whatever you want to call them, from your principal, um, or principals if you work at multiple practices, um, we can work off your three months' earnings. So obviously, you know, the first few months of of going associate, you're you're perhaps um earning a little bit less because you're building up your client list speed and everything. Um but you know, if you're if you're doing let's say 5k a month for the first few months, uh well that that lenders will use that as 60k income. So um they can base their lending decision on an income of 60k. So you can get a mortgage with just three months of pay schedules for associates. Um yeah, so that that they're probably the main two things that are uh coming up over the next few months. Um what do I think is going to happen to interest rates? Uh that's that's a tough one because it it I think a lot of it depends on what's going to happen in the Middle East. If that if they do do a deal and that all settles and inflation pressure is low, well, I think rates will come down back down to sort of perhaps this is fixed rates where we were in February, so perhaps a one percent lower than what they are today. Uh, but we've got inflation and Bank of England meetings next week. Uh so if inflation stays lower, like it's currently sat at um around the sort of three percent mark. If it if it uh if it doesn't go up any more than that, um I think we'll there'll be a hold on Bank of England base rate if it if it's starting to spike, well then Bank of England base rate's likely to go up. Um and news like that then does affect the fixed rates, which is the reason why we've seen fixed rates increasing, even though Bank of England base rate hasn't, because that is going on the money markets, and it's the lenders basically are swapping their variable rate because they want to hedge against the risk of um loads of clients being on a fixed rate. So lenders, how they calculate the um their fixed rates is they go to the money markets um and that's called swap rates. They they're swapping their variable rate for a fixed rate for you to take out a fixed rate mortgage because they don't want to take the risk of giving you a fixed rate and Bank of England base rate going up, and they then can't afford that's when you have runs on banks and they can't afford you, you know, you're you're paying a really low rate, and yet they're borrowing at a much higher rate, they they can't afford to do that. So so they go to the money markets and they they swapping their variable rate for a fixed rate, and and that that reduces their risks massively. So swap rates have gone up, um, and they have actually gone up last night because of you know the Israel Iran uh firing yesterday at each other. So um things like that have a massive impact on the market. Um, so it just depends on what happens there. But you know, as long as that ceasefire can hold off and they do a deal and the straits keep open, um I think and before winter, so inflation's not affected too much and fuel, uh, I think I think we can see hopefully a bank base rate of somewhere between three and three and a half percent. But if inflation does start going out of control, I think we're more likely to see a Bank of England base rate of between four and four and a half percent. So it's it's very hard to predict. What should you do? Should you have a fixed rate, a tracker rate? Again, that's that's down to your appetite for risk. Two-year fixed rate that might just see you through the turmoil of the next two years, and in two years' time, hopefully we should see things settle and and back to a new normal. Um but if we look at the last five years, we've had COVID, we've had Ukraine, and now we've had this Middle East conflict, you know, there are always things going on. So if you want to take out all of those risks, um, well, really typically the longest fixed rate you're going to get with the majority of lenders is a five-year deal, and I would say five year, and then you don't have to worry about it. Um, so yeah, those are your options.

Dr James, 13m 3s:

Good to know, good to know. Well, do you know what, Sarah? Here's something um that I just wanted to add on top of all the things that we said today, because obviously this has been a really good summary of what's going on in the world and how it relates to mortgages and more specifically how it relates to the mortgages of dentists. Tell me about interest-only mortgages, because you know what I always find intra uh interesting, uh no pun intended, about uh interest-only mortgages is that the when I talk to mortgage brokers, a lot of mortgage brokers have interest-only mortgages, which kind of tells you that how can I say this? There's a little bit of a clue there that well, they might off they might offer some advantages. UK dentists, Dentists Who Invests now has an official platform where you can learn about finance and obtain UK compliant, verifiable CPD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal. And for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month for this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Sarah, 15m 39s:

Yes, so in interest only mortgages, you you need to have typic well, you have need to have a minimum equity of 15%, but it depends on which lenders, the majority it's 25%, and it depends on what you mean by interest only. Do you mean interest only and you plan to downsize, i.e., sell that property and downsize to a smaller property? Well, then some lenders will only do 50% of the value interest only, uh the rest needs to be capital repayment, or or you need to have 300k equity, you know. So so yes, interest only is an option, typically not an option for first-time buyers, but again, there are some lenders that will do that for first-time buyers. Um but yeah, it's a it's it's a great way. My mortgage, my own personal mortgage, is interest only. But that's because I wanted to have a have a bigger house. I don't have any children, so I didn't want to be a mortgage slave and um and then be paying a mortgage for for a large property, and then when you come to retire and downsize, you've got a load of equity, and then you've got to get rid of it and spend it because you don't want the tax fund to take it when you die as well. So um, so that was that was the choice that I made is is that you know, I I want to, you know, it's it's cheaper than rent. Um and I've got enough equity in it to downsize to something, you know, very comfortable when I want to retire. And and so that's that's how I've worked my interest only. It's not for everybody, but you know, centers tend to be quite entrepreneurial, quite um quite sort of uh higher risk takers, and and so therefore it it might be might be suitable to them.

Dr James, 17m 53s:

Sure. Or there's even the possibility that if you know what you're doing whenever it comes to the investing side of things, that you could take the money that you would have been repaying into the mortgage, put it in your ISA, grow it, uh hopefully make a little bit of a profit in terms of you having more cash than what you would have had if you would have repaid the mortgage, uh, and then take the money out tax-free whenever the principal is repayable. And as I say, have enough to pay off the house and also have a little tidy little profit in there too. So there is that there is that possibility.

Sarah, 18m 26s:

Um, you know, not so there's also um, you know, tax-free lump sums. Some you know, quite a few clients have nice NHS pension schemes, which they'll have uh their tax-free lump sum from their NHS pension scheme that can be used as a as a repayment vehicle for the interest only. And yeah, you can use an ISA as a repayment vehicle. Yeah, you know, um but pensions, pensions and ICEs are good good examples because they're quite tax-efficient going into them, aren't they?

Dr James, 19m 5s:

Well well, there you go. It's but it's all based on um providing that stays the same, that the rules around those for the next X number of years, there is a little bit of a gamble there, of course, but you can get a lot of house. Um you can get a lot of house uh for you know, you know, and be in a position we don't have to repay that much every month, but it's just depends on whether or not you're comfortable with that. Can you walk me through that thing that you were saying just a second ago? I know I get that what you were saying about how some lenders will ask for typically a 25% deposit and some ask for 15% deposit if you're going to go down the interest only route. But what was that thing that you were you talked about immediately afterwards, which was there seems seems to be some rules around the equity.

Sarah, 19m 48s:

So it yes, if if your if your plan, if your because lenders need to know how then money is going to be repaid at the end of the term. So if you do what they call pure interest only, are you you haven't got a sales uh a repayment vehicle like a pension or an ICE, yeah, you can say, right, the my repayment vehicle is sale of my more of the mortgaged property, the the home that you're gonna give a mortgage on.

Speaker, 20m 20s:

Yeah.

Sarah, 20m 21s:

No, um there's typically you need, I would say, I think the lowest amount of equity that any one lender that will give it needs to be 150k in equity or 25% of the value. So so if you're buying at a million or your property's worth a million, you know, it's going to be the 25% equity that you you need to have.

Dr James, 20m 56s:

Um do you mean do you mean in terms of the if if I've understood this correctly, do you mean the deposit?

Sarah, 21m 2s:

Deposit, deposit or equity, yeah. So 250k, and then you can have a mortgage of 750.

Dr James, 21m 9s:

Yes, fine. Yes. Right.

Sarah, 21m 11s:

But but but some lenders say that if if sale of um the mortgage property is the repayment vehicle, they'll only give 50% of the value.

Dr James, 21m 23s:

Oh, really?

Sarah, 21m 25s:

Um, but you can you can still go up to 75% to 85%. The remainder has to be done on a capital repayment basis.

Dr James, 21m 35s:

Yeah, so it you can have like a blended part and part and part, yeah.

Sarah, 21m 39s:

Yeah.

Dr James, 21m 40s:

Ah, okay. Interesting, because it's I have to admit, it's something that has always appealed to me. Um, given that I would, well, uh hopefully think that I could uh use the ISA to make up the difference or the pension. Um obviously no one can predict the future, but I'd I'd I'd feel pretty comfortable with that. Um then have a little bit of a tidy profit left over. Because remember, if you know what you're doing in your ISA, your the stock market, I mean I'm just quoting averages here, I'm not saying that this is gonna indicate future performance for everybody, but the stock market is said to return 10% uh per year, whereas obviously the house is six percent a year, and your debt might be appreciating at a rate of three percent a year. Okay, so if you take the money that you would have used to repay your debt, knock off inflation, you're making basically 7% return net, okay? Which is much better than which is much better than what uh well you by the time you've paid off the principal, you're gonna have more in there than you would have done otherwise, basically, versus just paying the debt off continuously. And I get that that's a little abstract, but I'm happy we should probably do some worked examples on that one at some stage. But suffice to say suffice to say you're gonna make a little bit of a profit. If you borrow a million pounds, okay, you then let's say you're repaying the million. Here's a very crude example, okay? You borrow a million pounds, you're repaying a million pounds, right? At the end, you're all square, okay? But instead of repaying the million pounds, if you then take it and invest it for 20 years, okay. I haven't done the math on this, but you might have like a million and a half, you can then repay the million and have 500. Yes. Now it doesn't work exactly like that. I'm just doing it for for simplicity of understanding. But that's the principle behind it.

Sarah, 23m 26s:

Yes. Yes. And that's that's the thing, don't also forget, because like, yes, okay, you know, in today's market, let's say interest rates were five percent, uh, and you're getting a 10% return in your example. Well, you know, you are. You are up. Um obviously markets can change and you you you can go down as well as up. Uh um in that in but also the other thing factor is is if your investment is staying ahead of inflation, that million pound mortgage is being eroded by inflation as well. So although it's still sat at a million pounds, over a 25-year period, a million pounds 25 years ago was a lot lot more, you know, probably two and a half million in today's in today's terms.

Dr James, 24m 25s:

Yeah, we're gonna do the math, right? But significantly. And we're talking because it's such a long time period, you've got an you're actually when you're a borrower, inflation works for you, not against you. Yes. Um obviously that also erodes your final pot as well, because the one and a half million in real terms is maybe I don't know, well, it's much less than what it would have been if you would have had one and a half million 20 years ago, but there's still a differential there that means that you're in profit because that's the principle of how investing works, it outpaces inflation, yeah? Yes, um, yeah, or at least whenever you use the whole um ETF strategy, um, which people commonly do. But yeah, anyway, not to digress, I just wanted to touch on that. I don't think we've ever talked about that in the podcast, Sarah, and it's such useful stuff to know. Maybe if we have, it was a long time ago, and it's worth saying again because a lot of people on these podcasts who listen to these are educated uh whenever it comes to uh the the finance and what have you. So it's good to know these things are out there because um I always remember uh this one of the one of my friends who insisted that I read a book on finance maybe like 10 years ago, which kind of got me into this whole rabbit hole. Um he was one of the exact same friends that like a year a year ago, he was like, Jims, have you heard of these things called interest-only mortgages, right? And he was absolutely how can I say this? Uh he was just besotted with the idea that what he could do with that. And I was like, when you didn't know that. I remember you showed me this book ages ago when you uh it's kind of we've things have flipped on their head here because I thought everybody knew about this. So that was actually kind of what inspired me to mention that today in the podcast because I don't think people know this sort of stuff. Sarah, have we done a really good job of rounding up today's mortgage market today on the podcast?

Speaker, 26m 14s:

Yeah, yeah, we we we I I think I think we have. Um obviously I'm biased.

Dr James, 26m 21s:

It's okay to blow your own trumpet every once in a while. Sarah, if anybody wants to reach out to you off the back of the podcast, how can they do that?

Sarah, 26m 28s:

Yeah, just um give us a call, 0203 633 888, or go to our website, SarahHyphen Grace.co.uk, um, and you can contact us through that. Um and we've got lots of um lots of blogs, blog articles, and we're having a bit of a refresh on our website. So if you think it's uh it's uh it's a bit sort of out of date, well don't watch this space. It is uh it is in the process of being changed. Um but there's a lot of uh useful you know frequently asked questions, that type of thing on there. But yeah, just just reach out to us, get in touch. We're always happy to help, happy to have complimentary chats with people. Um I've also got another colleague, Jordan, who um you know she can she can help people. She typically works with uh a lot of first time buyers. Um and so yeah, great.