So you have finished uni, you’re fully qualified as a Junior Doctor and you’ve managed to land a job after an intensive application process. What next? Do you sit back on your laurels and enjoy that salary? Or do you take the plunge and jump onto the first rung of the property ladder?
Life is hard for a first-time buyer, now more than ever. There are fewer high loan-to-value mortgages than back in the glory days pre-2007 and after prompting from the Financial Services Agency, banks are reeling in on interest-only mortgages, which were a lifeline to first-time buyers.
It is going to be a while before you save for a deposit, what with paying back your student loan and saying goodbye to student discounts and benefits. However, once you have a few thousand in the bank you then need to find a mortgage you can actually afford.
Many potential borrowers get excited when they calculate how much they could actually borrow. The rate is usually four times your salary, so with an average doctor’s starting salary being around £33,000 or so, you could borrow £132,000. But, and there are some buts, what you can actually afford to pay back and what you can borrow quite often differ.
Say you want to borrow £120,000, if you can muster up a 10% deposit and opt for a three-year fixed rate deal over a 25-year term, you are looking at paying back £772.43 per month. And, seeing as the average UK house price is £205,598, this £120,000 figure is miles below this price.
Getting an affordable mortgage is therefore rather tricky. So what do you do? Well the best advice is to save as big a deposit as possible. Bigger deposits mean less risk for the bank and this results in a better rate for you, and opens you up to better mortgage deals.
You can also look at paying over a longer term as this will work to reduce your rate. But some banks are rather restrictive over this, so you need to fully investigate what each mortgage offers and thoroughly read the small print.
Before going to your bank, make use of online calculators such as the mortgage calculator from Santander. There are also repayments calculators so you can see how much you can borrow and how much you will have to pay back each month. Once you have found the right balance, only then can you approach your bank.
And if you do decide to get a mortgage, right now could be time to lock in a fixed-rate deal. OK – so for the past few months and for probably the next couple of months a tracker mortgage will come out as more cost effective, but the interest rate isn’t likely to get any lower, and with fixed-rate deals at their lowest levels right now, it makes sense to secure these rates for the next two to five years.