Richard Lishman evaluates the options.
Interest rates have sustained their skyward trend, reaching highs not seen for over 15 years. The numbers have continued to climb in a bid to tackle inflation, taking mortgage rates with them into the financial stratosphere. The residential property market can be difficult to traverse for self-employed dentists, but it’s worth considering how the rises could affect your situations now, and in the future.
For a substantial period over the past decade, interest rates have been somewhat stable. The Bank of England’s base rate has stayed under one per cent since 2009, reaching a low of 0.1 per cent during the pandemic. In January 2022, the rise began; the hike from 0.1 per cent to one per cent took six months, and six months after that, it had trebled, breaking five per cent in June 2023. Mortgage rates have followed in trend, leaving the landscape for purchasing property a stressful environment.
It’s worth noting who this rise affects most. Those in fixed-rate mortgage deals will not see this change their monthly payments – until their agreed term comes to an end.
Those on a variable rate will have witnessed an almost immediate effect, expenses surging skywards at a pace chosen by their lender. A tracker rate is an adaption of a variable rate, but it follows the Bank of England base rate at a consistent difference, for example, one per cent above the base rate. Variable terms may have been beneficial over the past few years, but they are now at the mercy of interest rate rises.
Dentists and mortgages
A majority of dentists may experience the residential mortgage difficulties associated with being self-employed. It is essential to find a lender who understands the financial differences between this career and other conventional self-employed and salaried roles. The right one will recognise the earning potential over a career. Some lenders have been reported to offer a mortgage value of five or six times an applicant’s annual income, but the onus is on the borrower to ensure they are a trustworthy source.
Many lenders will look at an individual’s average salary and dividends across the past three years, which for self-employed dentists could look irregular, especially if they operate between various practices. The additional scrutiny helps to protect the lender’s financial commitment, but it shouldn’t be an issue with records that display the consistent financial ability required to meet mortgage repayments.
Approaching the market
In order to swallow the expense increase, some people will need to adjust their monthly budgets and spending, where possible. There are, though, multiple ways to work with and around the increased rates.
It’s important to consider the value of remortgaging with your current lender or another altogether. Professionals with a fixed rate mortgage should take advantage of any remaining period of lower rates, but it’s worth looking ahead for when the deal comes to an end. Entering a fixed rate mortgage scheme now is an option if you believe the rates are likely to increase further, and remain there for an extended period of time. In a similar vein, entering a variable agreement that is either independently relying on a lender’s standard variable rate or is directly tracking the Bank of England’s base rate could take advantage of any drop in the interest rate in the near future.
Reducing your monthly payments is also possible by readjusting the terms of your mortgage. Whilst it does not affect the interest rate, extending a residential mortgage from 25 years to 40, where possible, will reduce the amount you owe in each instalment. However, the interest will add up over time, and extending the term means you will pay more overall.
Commercial mortgages will certainly feel the mortgage rate rise too, as they typically utilise variable rates – often higher than those for residential properties. The term length will likely be far shorter, and the ratio of loan to property value will be far lower than that of a residential mortgage, with a ceiling of 65 per cent. Lenders will also request a business plan to see how high their risk is and how probable it is that their financial investment will be returned.
Finding your best option
Making decisions about your mortgage in such a pivotal moment can be extremely stressful. By contacting money4dentists, you can gain the help of a respected and experienced team of independent financial advisors who intimately understand your needs and situation as a dentist. The team will find the best mortgage rates and terms for you, guiding you through the entire process from initial interest, to submitting an application, and receiving a mortgage in principle. Money4dentists provides security for first-time buyers, those looking to remortgage or move, and even others considering residential buy-to-lets.
As interest rates rise, consider your current situation and the possible economic turns ahead to judge the best route for you. Mortgages are an important investment, and having expert help surrounding the rising rates could save you time, money, and plenty of stress.
For more information call 0845 345 5060, email email@example.com or visit www.money4dentists.com