Doctors Mortgages

Getting a mortgage as a fist time buyer

If you’re a junior doctor thinking about applying for your first mortgage this guide is for you. Many doctors consider buying their first home as a trainee and we’d like to help you along that journey.

What do we cover in this mortgage guide for doctors?

• What is a mortgage?
• Should I aim to put down a 10% deposit as a foundation doctor?
• Can you get a mortgage as a specialty trainee doctor?
• How is my income assessed as a doctor in training?
• Will the lender accept my additional hours or banding income?
• Can a doctor get a mortgage on a fixed term contract?
• How junior doctors should understand their credit score
• How to find the right mortgage
• The process of buying a house as a junior doctor

What is a mortgage?

Put simply, a mortgage is a loan used to help you buy a house or flat.

When you buy a property, you need to put down a percentage of the cost as a deposit. The rest of the money you’ll need to buy your new home is covered by a mortgage.

You borrow this money from a bank or building society. You’ll then pay the money back each month for a set number of years – this is called a mortgage term. A mortgage term can run for up to 40 years.

You’ll pay interest on your mortgage. How much you’ll pay in interest depends on your mortgage rate, how much you borrow and for how long. The quicker you pay off your mortgage, the less interest you’ll pay.

How much you pay back each month will depend on:

• The type of mortgage you get
• How much you borrow
• The term of your mortgage
• The interest rate you have been offered by the bank

As a junior doctor, you may be eligible for a Professional Mortgage which offers better terms or criteria based on the type of contract you are on. Doctor mortgage loan rates can be more favourable.

How important is the LTV ratio?

As a junior doctor buying for the first time you should understand the importance of the loan to value ratio.

• Loan = how much you are borrowing
• Value = Purchase price

For example a house bought for £400,000 with a deposit of £40,000 (10%) will have a loan to value ratio of 90%.

Mortgage lender will offer better interest rates to borrowers with higher deposits. The interest rates are set in tiers usually starting around 60% of the purchase price (where you will be offered the best rates) and rising.

As property has continued to increase in price it’s important to get the best interest rate because it makes the repayments lower.

Should I aim to put down a 10% deposit as a foundation doctor?

The mortgage landscape has changed post pandemic and 95% mortgages are harder to find.

These days you’ll need at least 10% as a mortgage deposit. However, the government has introduced a new 95% mortgage scheme to encourage banks to start doing them again. Help to Buy mortgages are also an option for those with a low deposit.

Many junior doctors will be in the fortunate position of receiving help with a gift from a parent or relative. It might be an idea to have a conversation about achieving a percentage of the purchase price rather than setting a fixed amount for a deposit gift.  This way you may be in a position to get a better rate.

For example, your parents could choose to gift you £10,000 because it is a nice round figure. However when the purchase price has been agreed it might have been better to gift £12,000 to lower your LTV and take you into the cheaper rate tier. It’s worth thinking about.

Can you can benefit from lower interest rates?

The biggest rate decrease is usually between rates over 85% and rates below 85% and importantly having a lower LTV ratio can change the lending criteria making it easier to apply for the mortgage you need.

We have a guide for doctors saving for a mortgage deposit that is worth checking out.

Can you get a mortgage as a speciality trainee doctor?

If you’re applying for a junior doctor mortgage you are likely to be a first time buyer. It’s an exciting time but it can be a bit daunting. Talking through your options with a specialist mortgage broker who has the experience of dealing with junior doctors is a great start. They will know the best mortgages for doctors to apply for.

Your medics mortgage broker will be able to ensure you meet the bank or building society lending criteria and affordability before your application is submitted. This gives you the best chance of success when applying for a mortgage as a junior doctor.

The lender will assess your mortgage application against their criteria and one of the most important factors is establishing that you can afford to repay the loan.

The affordability calculations are different for each lender so your mortgage broker will be able to advise on which lender can offer you the most if that’s important to you. Mortgage lenders will assess your affordability by looking closely at your income and expenditure.

How is my income assessed as a doctor in training?

At this stage of your career you will find yourself with fixed term contracts usually for a year at at time, sometimes less. It is important to know that not all lenders will accept short term contracts and if they do some apply special terms such as not using all of your income. A junior doctors mortgage adviser will help you understand what lenders look for when applying for a mortgage and will be able to guide you towards the right bank or building society.

As a rough guide, you should be able to borrow around 4 or 4.5 times your salary (if you’re applying with somebody else this can be combined). The actual loan amount will fluctuate depending on your fixed outgoings like student loan payment, credit cards, pension contribution, travelling expenses. Most lenders will include some or all of these payments in their affordability assessment. Again, your mortgage adviser will be able to select the most suitable lender based on your circumstances.

Will the lender accept additional hours and banding?

Not many lenders understand NHS payslips and most will only allow your basic salary to be used. Any additional income earned above this will be treated differently by lenders so it’s a good idea to get a specialist junior doctors mortgage broker involved if you want to maximise your income.

Can a doctor get a mortgage on a fixed term contract?

The mortgage lender will want to see you last three payslips and your contract. This can be hard to get hold of so it’s a good idea to chase up your trust before you are ready to make a mortgage application. Sometimes you will have a letter confirming your employment and this can be used in some circumstances. If you are moving to a new hospital your junior doctors mortgage broker will be able to advise you on the best doctors mortgage lender.

Your expenditure as a trainee doctor

The lender will want to look at your regular expenditure when assessing your ability to afford the mortgage. They may want to see your past bank statements to see what your spending your money on. This is nothing to worry about but you can do a few things to prepare your accounts and streamline your spending.

Don’t worry too much about your general expenditure and bills as these are to be expected. If there’s any other large regular payments you can do without such as a TV subscription or gym membership, it might be a good idea to cancel these and prioritise your home purchase.

How junior doctors should understand their credit score?

Your credit record is quietly building up without you knowing. Every bill you pay is recorded along with your bank accounts, loans, credit card and so on. Its easy to get a really good credit score as long as you make your repayments but beware any missed or late payment is registered and has a really detrimental effect. It wont pick up your rent payment so make sure you have your own phone and other bills in your name if possible.

Have a look at your own credit score and familiarise yourself with the information. Get a copy from Experian or Equifax.

Even if you think your credit score should be healthy, it’s worth checking before you make your mortgage application. As a student and a junior doctor you’ve probably house shared at some point. Without knowing it your housemates’ payment history could have affected credit score due to an address association.

Credit scores take time to build, but there are things you can do that may help to boost your rating:

• Get yourself on the electoral roll: Always make sure you’re registered to vote. This is one of the single biggest positive impacts on your credit file. Register at gov.uk if you haven’t already done it.
• Check for accuracy: Get a copy of your credit file and make sure all the information is correct. You will have moved around as a student and junior doctor so check the address history is up to date.
• Use a credit card: Remember, the mortgage lender will check your file to get an understanding of whether you are good at paying off debts. It’s a good idea to use a credit card on a regular basis and pay it off each month to show you are creditworthy.
• Clear your debts: Debts are not your friends when plying for a mortgage. The repayments will reduce your affordability and lower the mortgage you can get. Pay off any debts as soon as possible.

Read some reviews from fist time buyers….

Not all mortgages are the same. How do you find the right one for you?

When you know how much you can borrow and the deposit needed, you need to compare the mortgages available on the market. This means looking at more than just mortgage rates and making sure you choose a junior doctor mortgage that best suits your needs.

You should consider the following

• What type of rate do you want. Fixed, Variable, Tracker and so on
• How long do you want the mortgage term to be
• What are the fees or charges for the rate, application or valuation

Your mortgage adviser will help you understand all your options and provide illustrations of the recommended mortgage.

Choosing the term of a mortgage

With the rising cost of home ownership, junior doctors are opting for longer mortgage terms to reduce their monthly repayments. Mortgages have traditionally be set up to be repaid over 25 years. Trainee doctors have age on their side and an awareness of their future earnings potential.

A lot of first time buyers are choosing a mortgage term of 30 or 35 years. Remember, although the term is set a lot can happen in your life and your circumstances are likely to change. If you are able to pay the loan back quicker you can make over-payments to reduce the term. You may want to move or buy another home in the future at which time you can agree another mortgage term.

Are fixed rate mortgages a good idea?

Fixed rate mortgages mean paying a set amount each month for a given length of time. Fixed-rate mortgages deals are often for two, three or five years.

Fixed rate mortgages are the most common type taken out by junior doctors buying for the first time. As the Bank of England rate rises over time you will have peace of mind that your repayments stay the same until the fixed rate term ends.

At the end of your fixed period, you'll need to switch to a new rate to fix again. You can do this either with the same lender or another one by remortgage if they are offering a better deal. If you don't, you'll be charged at your lender's standard variable rate (SVR), which is usually much more expensive.

The process of buying a house as a junior doctor

Of course, there’s more to buying a house than arranging a junior doctor mortgage. If you’re not sure what happens (and when) in the home-buying process, here’s a very brief overview of the steps involved.

• Know your budget. Before you apply for a mortgage, you’re going to need to know what you can borrow. This will help you know what value property you might be able to afford.A doctors mortgage broker will use affordability calculators from medic friendly lenders to get an idea of the value of property you might be able to afford. You’ll also get an estimate on what the monthly repayments could be.
• Get a decision in principle. It's always fun to search Rightmove for the perfect home but before you start in earnest your should ask your broker for a 'decision in principle'.This isn’t an official mortgage offer, but more an indication of how much the lender is willing to lend you. When you’ve got an Agreement in Principle, you can start house hunting.
• Secure your new home. When you've found your perfect first home - and you'll know when you do,  you need to agree a price to pay.The estate agent will speak to the seller and handle any negotiations. Once the price has been agreed you're on your way to home ownership!
• You'll need a solicitor. A solicitor will sort all the legal work involved in the purchase of your first home.A solicitor or conveyancer will draw up contracts and handle the exchange of these with the seller’s representative, as well as the payment of your deposit. You can use our doctors conveyancing service to find a recommended firm from our panel of recommended conveyancers.
• Get a mortgage offer. You'll need to progress with your full mortgage application and the lender will check your documentation and request a property survey.Once all the checks have been carried out the lender will issue a formal mortgage offer. This is your guarantee of mortgage acceptance and your solicitor will be able to move forward with the purchase.
• Final stages of buying your first home. You’re on the home straight now.Your conveyancer will exchange contracts and pay your deposit to the seller once all the searches are done and you are ready to move forward. This is legally binding and a moving in date will be agreed by all parties  before the purchase is finalised.

That's all there is to it. You'll have help along the way from friends, family and of course your mortgage broker. So make sure you use all the resources to hand and ask any questions you have as you go along the journey of getting a junior doctor mortgage.