June 8, 2026 • 27 mins
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Your mortgage rate is not just about the Bank of England base rate and this chat proves why. We sit down with Sarah Grace, a specialist mortgage broker who works closely with UK dentists, to unpack what is happening in the mortgage market as a huge wave of borrowers roll off two-year and five-year fixes. If you are moving from a sub-2% deal to something that starts with a four, you are not alone and you are not imagining the shock.
We get practical on the decision that matters most right now: fixed rate mortgage versus tracker mortgage. Sarah explains why fixed rates can jump even when base rate holds, how swap rates and the money markets feed into lender pricing, and what that means during periods of global uncertainty. We also talk about the fine print that can save you money later, especially early repayment charges, and why a tracker with no ERC can offer flexibility if you want to switch when the mood changes.
For associates and dentists early in their career, we answer a common worry: whether you need two years of accounts to get a mortgage after becoming self-employed. Sarah shares how some lenders can work from three months of pay schedules, how income may be annualised, and how to think about timing when your earnings are still building. Then we go deeper on interest-only mortgages, including equity requirements, lender rules around downsizing as a repayment plan, and alternatives such as using an ISA or an NHS pension tax-free lump sum as the repayment vehicle.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dr James (01:15):
Today we're here to talk about mortgages, but
obviously our goal and objectiveis to make them at the
beginning as well.
Today we will focus on coveringwhat is happening out there
whenever it comes to mortgages,what we need to know whether
we're about to take on amortgage, whether we will do it
at some stage, even if it's notimminent, or we already have
(01:36):
one.
I'm joined today by expertmortgage booker to dentist, Mrs.
We're going to be covering allof those things and more so that
you can ensure you are payingthe least that you possibly can
to get that dream house.
As ever, you can claim your CPDfor this episode within the
official Dentists Who InvestSmart Money Members Club.
(01:57):
Smart Money Members Club alsoincludes multiple mini courses
and webinar series on financefor dentists, including how to
become as tax-efficient aspossible, as well as
understanding investing.
All of this content counts asverifiable CPD, and you can
download your certificates thereand then upon completion of
each lesson.
In addition to this, we alsoinclude a whopping 10% discount
(02:18):
on your dental indemnity and a5% discount on lab bills for
dental principals, amongst otherperks and discounts for
members.
Please use the link in thedescription to claim your
verifiable CPD for this episode.
Hi Sarah, how's it going?
Good to see you again.
Speaker (02:37):
Good, good, thank you.
Sarah (02:38):
Good uh, yes.
So, what's happening uh withrates?
Well, um we're in a large yearfor remortgaging, a lot of
people coming off two-year dealsand also five-year deals.
So if you're coming off atwo-year deal, the rates where
they're sitting at the momentare probably not that dissimilar
(03:01):
to what you were on two yearsago.
They might be a little bitlower, they may be a little bit
higher.
Uh, it depends on what sort ofdeal you had two years ago, but
they're about the same.
The bad news is for the peopleof which I am one, uh, coming
off a five-year deal of probablysome.
(03:22):
Well, I've even got someclients with a 0.99 uh deal that
they're coming off.
Uh, but yeah, your your ratingyou're coming off is probably
starting with a one, and you'reprobably looking at going to a
rate starting with a four.
No, yeah.
(03:42):
There are some trackers, sothis is this is probably the big
dilemma at the moment.
Tracker rates that tracks aBank of England base rate.
Obviously, since all of theconflict in the Middle East, we
haven't we haven't seen the Bankof England base rate go up, yet
fixed rates have.
And fixed rates probably at themoment uh are about one percent
(04:08):
higher than what they were atthe end of February.
Uh so at the end of February,we could get a two-year fixed
rate, for example, at around3.64 today.
That is one percent more.
And that's that's with HSB C.
You know, 4.64 is is the ratewith HSB C today on a two-year
(04:30):
deal.
So so um tracker rates areactually looking like a good
option.
However, you know, it's not forthe faint-hearted because if
Bank of England base rate goesup by one percent, well, then
you'll be paying one percentmore every time the Bank of
(04:51):
England increases their rates,you will pay that increase, or
likewise, if they decrease, youwill pay that decrease by
typically quarter of a percentthey increase or decrease them
by.
Um, but you know, uh when I wasdoing some research yesterday,
I could get a 3.96 tracker, soit's 0.21 over Bank of England
(05:14):
base rate.
Uh so that's actually lookingquite competitive because rates
would have to go up by threequarters of a percent before
it's matching that two-yearfixed rate.
Um so so yeah, you know, thetracker rates are an option.
(05:37):
Um, and if you're not adverseto a bit of risk, that might be
a good thing.
But the the other advantage ofa tracker at the moment is most
lenders, but just be careful ofthat when you when you are
looking or getting your brokerto, is um most of them don't
(05:58):
have early redemption charges.
So if rates do start going upand you're getting a bit nervous
and you want to look in a fixedrate, you you can do without
any early repayment charges.
But there are some lenders thathave tracker rates with an
early repayment charge, so youyou would incur that fee.
(06:18):
So I would always suggest ifyou're doing a tracker, make
sure you have no early repaymentcharges.
Um, so so that's that's it onthe sort of rights.
Um other things that are goingon.
We could have some FDs, peoplefinishing their foundation year
(06:38):
or years going into associatepositions, sorting those out
from um August, September time.
Um do you need to have twoyears accounts to be able to get
a mortgage?
Um because obviously you'll begoing self-employed.
No, you don't.
We can work off three months,three months pay schedules,
(07:00):
invoices, whatever you want tocall them, from your principal,
um, or principals if you work atmultiple practices, um, we can
work off your three months'earnings.
So obviously, you know, thefirst few months of of going
associate, you're you're perhapsum earning a little bit less
because you're building up yourclient list speed and
(07:24):
everything.
Um but you know, if you're ifyou'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 theirlending decision on an income of
60k.
So you can get a mortgage withjust three months of pay
(07:47):
schedules for associates.
Um yeah, so that that they'reprobably the main two things
that are uh coming up over thenext few months.
Um what do I think is going tohappen to interest rates?
Uh that's that's a tough onebecause it it I think a lot of
(08:08):
it depends on what's going tohappen in the Middle East.
If that if they do do a dealand that all settles and
inflation pressure is low, well,I think rates will come down
back down to sort of perhapsthis is fixed rates where we
were in February, so perhaps aone percent lower than what they
(08:31):
are today.
Uh, but we've got inflation andBank of England meetings next
week.
Uh so if inflation stays lower,like it's currently sat at um
around the sort of three percentmark.
If it if it uh if it doesn't goup any more than that, um I
(08:55):
think we'll there'll be a holdon 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 doesaffect the fixed rates, which
is the reason why we've seenfixed rates increasing, even
(09:15):
though Bank of England base ratehasn't, because that is going
on the money markets, and it'sthe lenders basically are
swapping their variable ratebecause they want to hedge
against the risk of um loads ofclients being on a fixed rate.
(09:35):
So lenders, how they calculatethe um their fixed rates is they
go to the money markets um andthat's called swap rates.
They they're swapping theirvariable rate for a fixed rate
for you to take out a fixed ratemortgage because they don't
(09:56):
want to take the risk of givingyou a fixed rate and Bank of
England base rate going up, andthey then can't afford that's
when you have runs on banks andthey can't afford you, you know,
you're you're paying a reallylow rate, and yet they're
(10:16):
borrowing at a much higher rate,they they can't afford to do
that.
So so they go to the moneymarkets and they they swapping
their variable rate for a fixedrate, and and that that reduces
their risks massively.
So swap rates have gone up, um,and they have actually gone up
(10:36):
last night because of you knowthe Israel Iran uh firing
yesterday at each other.
So um things like that have amassive impact on the market.
Um, so it just depends on whathappens there.
But you know, as long as thatceasefire can hold off and they
(11:00):
do a deal and the straits keepopen, um I think and before
winter, so inflation's notaffected too much and fuel, uh,
I think I think we can seehopefully a bank base rate of
somewhere between three andthree and a half percent.
But if inflation does startgoing out of control, I think
(11:22):
we're more likely to see a Bankof England base rate of between
four and four and a halfpercent.
So it's it's very hard topredict.
What should you do?
Should you have a fixed rate, atracker rate?
Again, that's that's down toyour appetite for risk.
(11:42):
Two-year fixed rate that mightjust see you through the turmoil
of the next two years, and intwo years' time, hopefully we
should see things settle and andback to a new normal.
Um but if we look at the lastfive years, we've had COVID,
(12:07):
we've had Ukraine, and now we'vehad this Middle East conflict,
you know, there are alwaysthings going on.
So if you want to take out allof those risks, um, well, really
typically the longest fixedrate you're going to get with
the majority of lenders is afive-year deal, and I would say
five year, and then you don'thave to worry about it.
(12:29):
Um, so yeah, those are youroptions.
Dr James (12:36):
Good to know, good to know.
Well, do you know what, Sarah?
Here's something um that I justwanted to add on top of all the
things that we said today,because obviously this has been
a really good summary of what'sgoing on in the world and how it
relates to mortgages and morespecifically how it relates to
the mortgages of dentists.
Tell me about interest-onlymortgages, because you know what
(12:58):
I always find intra uhinteresting, uh no pun intended,
about uh interest-onlymortgages is that the when I
talk to mortgage brokers, a lotof mortgage brokers have
interest-only mortgages, whichkind of tells you that how can I
say this?
There's a little bit of a cluethere that well, they might off
they might offer someadvantages.
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(15:06):
of this podcast.
Sarah (15:11):
Yes, so in interest only mortgages, you you need to have
typic well, you have need tohave a minimum equity of 15%,
but it depends on which lenders,the majority it's 25%, and it
depends on what you mean byinterest only.
Do you mean interest only andyou plan to downsize, i.e., sell
(15:36):
that property and downsize to asmaller property?
Well, then some lenders willonly do 50% of the value
interest only, uh the rest needsto be capital repayment, or or
you need to have 300k equity,you know.
So so yes, interest only is anoption, typically not an option
(15:59):
for first-time buyers, butagain, there are some lenders
that will do that for first-timebuyers.
Um but yeah, it's a it's it's agreat way.
My mortgage, my own personalmortgage, is interest only.
But that's because I wanted tohave a have a bigger house.
I don't have any children, so Ididn't want to be a mortgage
(16:21):
slave and um and then be payinga mortgage for for a large
property, and then when you cometo retire and downsize, you've
got a load of equity, and thenyou've got to get rid of it and
spend it because you don't wantthe tax fund to take it when you
(16:42):
die as well.
So um, so that was that was thechoice 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 equityin it to downsize to something,
you know, very comfortable whenI want to retire.
(17:03):
And and so that's that's howI've worked my interest only.
It's not for everybody, but youknow, centers tend to be quite
entrepreneurial, quite um quitesort of uh higher risk takers,
and and so therefore it it mightbe might be suitable to them.
Dr James (17:25):
Sure.
Or there's even the possibilitythat if you know what you're
doing whenever it comes to theinvesting side of things, that
you could take the money thatyou would have been repaying
into the mortgage, put it inyour ISA, grow it, uh hopefully
make a little bit of a profit interms of you having more cash
than what you would have had ifyou would have repaid the
mortgage, uh, and then take themoney out tax-free whenever the
(17:48):
principal is repayable.
And as I say, have enough topay off the house and also have
a little tidy little profit inthere too.
So there is that there is thatpossibility.
Sarah (17:58):
Um, you know, not so there's also um, you know,
tax-free lump sums.
Some you know, quite a fewclients have nice NHS pension
schemes, which they'll have uhtheir tax-free lump sum from
their NHS pension scheme thatcan be used as a as a repayment
(18:19):
vehicle for the interest only.
And yeah, you can use an ISA asa repayment vehicle.
Yeah, you know, um butpensions, pensions and ICEs are
good good examples becausethey're quite tax-efficient
going into them, aren't they?
Dr James (18:37):
Well well, there you go.
It's but it's all based on umproviding that stays the same,
that the rules around those forthe next X number of years,
there is a little bit of agamble there, of course, but you
can get a lot of house.
Um you can get a lot of houseuh for you know, you know, and
be in a position we don't haveto repay that much every month,
(18:58):
but it's just depends on whetheror not you're comfortable with
that.
Can you walk me through thatthing that you were saying just
a second ago?
I know I get that what you weresaying about how some lenders
will ask for typically a 25%deposit and some ask for 15%
deposit if you're going to godown the interest only route.
But what was that thing thatyou were you talked about
immediately afterwards, whichwas there seems seems to be some
rules around the equity.
Sarah (19:20):
So it yes, if if your if your plan, if your because
lenders need to know how thenmoney is going to be repaid at
the end of the term.
So if you do what they callpure interest only, are you you
haven't got a sales uh arepayment vehicle like a pension
(19:41):
or an ICE, yeah, you can say,right, the my repayment vehicle
is sale of my more of themortgaged property, the the home
that you're gonna give amortgage on.
Speaker (19:52):
Yeah.
Sarah (19:53):
No, um there's typically you need, I would say, I think
the lowest amount of equity thatany one lender that will give
it needs to be 150k in equity or25% of the value.
(20:14):
So so if you're buying at amillion or your property's worth
a million, you know, it's goingto be the 25% equity that you
you need to have.
Dr James (20:28):
Um do you mean do you mean in terms of the if if I've
understood this correctly, doyou mean the deposit?
Sarah (20:34):
Deposit, deposit or equity, yeah.
So 250k, and then you can havea mortgage of 750.
Dr James (20:41):
Yes, fine.
Yes.
Right.
Sarah (20:43):
But but but some lenders say that if if sale of um the
mortgage property is therepayment vehicle, they'll only
give 50% of the value.
Dr James (20:55):
Oh, really?
Sarah (20:57):
Um, but you can you can still go up to 75% to 85%.
The remainder has to be done ona capital repayment basis.
Dr James (21:07):
Yeah, so it you can have like a blended part and
part and part, yeah.
Sarah (21:11):
Yeah.
Dr James (21:12):
Ah, okay.
Interesting, because it's Ihave 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 thedifference or the pension.
Um obviously no one can predictthe future, but I'd I'd I'd
feel pretty comfortable withthat.
(21:32):
Um then have a little bit of atidy profit left over.
Because remember, if you knowwhat you're doing in your ISA,
your the stock market, I meanI'm just quoting averages here,
I'm not saying that this isgonna indicate future
performance for everybody, butthe stock market is said to
return 10% uh per year, whereasobviously the house is six
percent a year, and your debtmight be appreciating at a rate
(21:55):
of three percent a year.
Okay, so if you take the moneythat you would have used to
repay your debt, knock offinflation, you're making
basically 7% return net, okay?
Which is much better than whichis much better than what uh
well you by the time you've paidoff the principal, you're gonna
have more in there than youwould have done otherwise,
(22:16):
basically, versus just payingthe debt off continuously.
And I get that that's a littleabstract, but I'm happy we
should probably do some workedexamples on that one at some
stage.
But suffice to say suffice tosay 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?
(22:36):
You borrow a million pounds,you're repaying a million
pounds, right?
At the end, you're all square,okay?
But instead of repaying themillion pounds, if you then take
it and invest it for 20 years,okay.
I haven't done the math onthis, but you might have like a
million and a half, you can thenrepay the million and have 500.
Yes.
Now it doesn't work exactlylike that.
I'm just doing it for forsimplicity of understanding.
(22:56):
But that's the principle behindit.
Sarah (22:58):
Yes.
Yes.
And that's that's the thing,don't also forget, because like,
yes, okay, you know, in today'smarket, let's say interest
rates were five percent, uh, andyou're getting a 10% return in
your example.
Well, you know, you are.
You are up.
Um obviously markets can changeand you you you can go down as
(23:24):
well as up.
Uh um in that in but also theother thing factor is is if your
investment is staying ahead ofinflation, that million pound
mortgage is being eroded byinflation as well.
So although it's still sat at amillion pounds, over a 25-year
(23:46):
period, a million pounds 25years ago was a lot lot more,
you know, probably two and ahalf million in today's in
today's terms.
Dr James (23:57):
Yeah, we're gonna do the math, right?
But significantly.
And we're talking because it'ssuch a long time period, you've
got an you're actually whenyou're a borrower, inflation
works for you, not against you.
Yes.
Um obviously that also erodesyour final pot as well, because
the one and a half million inreal terms is maybe I don't
know, well, it's much less thanwhat it would have been if you
(24:19):
would have had one and a halfmillion 20 years ago, but
there's still a differentialthere that means that you're in
profit because that's theprinciple of how investing
works, it outpaces inflation,yeah?
Yes, um, yeah, or at leastwhenever you use the whole um
ETF strategy, um, which peoplecommonly do.
But yeah, anyway, not todigress, I just wanted to touch
(24:40):
on that.
I don't think we've ever talkedabout that in the podcast,
Sarah, and it's such usefulstuff to know.
Maybe if we have, it was a longtime ago, and it's worth saying
again because a lot of peopleon these podcasts who listen to
these are educated uh wheneverit comes to uh the the finance
and what have you.
So it's good to know thesethings are out there because um
I always remember uh this one ofthe one of my friends who
(25:04):
insisted that I read a book onfinance maybe like 10 years ago,
which kind of got me into thiswhole rabbit hole.
Um he was one of the exact samefriends that like a year a year
ago, he was like, Jims, haveyou heard of these things called
interest-only mortgages, right?
And he was absolutely how can Isay this?
Uh he was just besotted withthe idea that what he could do
(25:27):
with that.
And I was like, when you didn'tknow that.
I remember you showed me thisbook ages ago when you uh it's
kind of we've things haveflipped on their head here
because I thought everybody knewabout this.
So that was actually kind ofwhat inspired me to mention that
today in the podcast because Idon't think people know this
sort of stuff.
Sarah, have we done a reallygood job of rounding up today's
mortgage market today on thepodcast?
Speaker (25:46):
Yeah, yeah, we we we I I think I think we have.
Um obviously I'm biased.
Dr James (25:54):
It's okay to blow your own trumpet every once in a
while.
Sarah, if anybody wants toreach out to you off the back of
the podcast, how can they dothat?
Sarah (26:00):
Yeah, just um give us a call, 0203 633 888, or go to our
website, SarahHyphenGrace.co.uk, um, and you can
contact us through that.
Um and we've got lots of umlots of blogs, blog articles,
(26:21):
and we're having a bit of arefresh on our website.
So if you think it's uh it's uhit's a bit sort of out of date,
well don't watch this space.
It is uh it is in the processof being changed.
Um but there's a lot of uhuseful you know frequently asked
questions, that type of thingon there.
But yeah, just just reach outto us, get in touch.
(26:44):
We're always happy to help,happy to have complimentary
chats with people.
Um I've also got anothercolleague, Jordan, who um you
know she can she can helppeople.
She typically works with uh alot of first time buyers.
Um and so yeah, great.
Today we're here to talk about mortgages, but
obviously our goal and objectiveis to make them at the
beginning as well.
Today we will focus on coveringwhat is happening out there
whenever it comes to mortgages,what we need to know whether
we're about to take on amortgage, whether we will do it
at some stage, even if it's notimminent, or we already have
(01:36):
one.
I'm joined today by expertmortgage booker to dentist, Mrs.
We're going to be covering allof those things and more so that
you can ensure you are payingthe least that you possibly can
to get that dream house.
As ever, you can claim your CPDfor this episode within the
official Dentists Who InvestSmart Money Members Club.
(01:57):
Smart Money Members Club alsoincludes multiple mini courses
and webinar series on financefor dentists, including how to
become as tax-efficient aspossible, as well as
understanding investing.
All of this content counts asverifiable CPD, and you can
download your certificates thereand then upon completion of
each lesson.
In addition to this, we alsoinclude a whopping 10% discount
(02:18):
on your dental indemnity and a5% discount on lab bills for
dental principals, amongst otherperks and discounts for
members.
Please use the link in thedescription to claim your
verifiable CPD for this episode.
Hi Sarah, how's it going?
Good to see you again.
Speaker (02:37):
Good, good, thank you.
Sarah (02:38):
Good uh, yes.
So, what's happening uh withrates?
Well, um we're in a large yearfor remortgaging, a lot of
people coming off two-year dealsand also five-year deals.
So if you're coming off atwo-year deal, the rates where
they're sitting at the momentare probably not that dissimilar
(03:01):
to what you were on two yearsago.
They might be a little bitlower, they may be a little bit
higher.
Uh, it depends on what sort ofdeal you had two years ago, but
they're about the same.
The bad news is for the peopleof which I am one, uh, coming
off a five-year deal of probablysome.
(03:22):
Well, I've even got someclients with a 0.99 uh deal that
they're coming off.
Uh, but yeah, your your ratingyou're coming off is probably
starting with a one, and you'reprobably looking at going to a
rate starting with a four.
No, yeah.
(03:42):
There are some trackers, sothis is this is probably the big
dilemma at the moment.
Tracker rates that tracks aBank of England base rate.
Obviously, since all of theconflict in the Middle East, we
haven't we haven't seen the Bankof England base rate go up, yet
fixed rates have.
And fixed rates probably at themoment uh are about one percent
(04:08):
higher than what they were atthe end of February.
Uh so at the end of February,we could get a two-year fixed
rate, for example, at around3.64 today.
That is one percent more.
And that's that's with HSB C.
You know, 4.64 is is the ratewith HSB C today on a two-year
(04:30):
deal.
So so um tracker rates areactually looking like a good
option.
However, you know, it's not forthe faint-hearted because if
Bank of England base rate goesup by one percent, well, then
you'll be paying one percentmore every time the Bank of
(04:51):
England increases their rates,you will pay that increase, or
likewise, if they decrease, youwill pay that decrease by
typically quarter of a percentthey increase or decrease them
by.
Um, but you know, uh when I wasdoing some research yesterday,
I could get a 3.96 tracker, soit's 0.21 over Bank of England
(05:14):
base rate.
Uh so that's actually lookingquite competitive because rates
would have to go up by threequarters of a percent before
it's matching that two-yearfixed rate.
Um so so yeah, you know, thetracker rates are an option.
(05:37):
Um, and if you're not adverseto a bit of risk, that might be
a good thing.
But the the other advantage ofa tracker at the moment is most
lenders, but just be careful ofthat when you when you are
looking or getting your brokerto, is um most of them don't
(05:58):
have early redemption charges.
So if rates do start going upand you're getting a bit nervous
and you want to look in a fixedrate, you you can do without
any early repayment charges.
But there are some lenders thathave tracker rates with an
early repayment charge, so youyou would incur that fee.
(06:18):
So I would always suggest ifyou're doing a tracker, make
sure you have no early repaymentcharges.
Um, so so that's that's it onthe sort of rights.
Um other things that are goingon.
We could have some FDs, peoplefinishing their foundation year
(06:38):
or years going into associatepositions, sorting those out
from um August, September time.
Um do you need to have twoyears accounts to be able to get
a mortgage?
Um because obviously you'll begoing self-employed.
No, you don't.
We can work off three months,three months pay schedules,
(07:00):
invoices, whatever you want tocall them, from your principal,
um, or principals if you work atmultiple practices, um, we can
work off your three months'earnings.
So obviously, you know, thefirst few months of of going
associate, you're you're perhapsum earning a little bit less
because you're building up yourclient list speed and
(07:24):
everything.
Um but you know, if you're ifyou'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 theirlending decision on an income of
60k.
So you can get a mortgage withjust three months of pay
(07:47):
schedules for associates.
Um yeah, so that that they'reprobably the main two things
that are uh coming up over thenext few months.
Um what do I think is going tohappen to interest rates?
Uh that's that's a tough onebecause it it I think a lot of
(08:08):
it depends on what's going tohappen in the Middle East.
If that if they do do a dealand that all settles and
inflation pressure is low, well,I think rates will come down
back down to sort of perhapsthis is fixed rates where we
were in February, so perhaps aone percent lower than what they
(08:31):
are today.
Uh, but we've got inflation andBank of England meetings next
week.
Uh so if inflation stays lower,like it's currently sat at um
around the sort of three percentmark.
If it if it uh if it doesn't goup any more than that, um I
(08:55):
think we'll there'll be a holdon 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 doesaffect the fixed rates, which
is the reason why we've seenfixed rates increasing, even
(09:15):
though Bank of England base ratehasn't, because that is going
on the money markets, and it'sthe lenders basically are
swapping their variable ratebecause they want to hedge
against the risk of um loads ofclients being on a fixed rate.
(09:35):
So lenders, how they calculatethe um their fixed rates is they
go to the money markets um andthat's called swap rates.
They they're swapping theirvariable rate for a fixed rate
for you to take out a fixed ratemortgage because they don't
(09:56):
want to take the risk of givingyou a fixed rate and Bank of
England base rate going up, andthey then can't afford that's
when you have runs on banks andthey can't afford you, you know,
you're you're paying a reallylow rate, and yet they're
(10:16):
borrowing at a much higher rate,they they can't afford to do
that.
So so they go to the moneymarkets and they they swapping
their variable rate for a fixedrate, and and that that reduces
their risks massively.
So swap rates have gone up, um,and they have actually gone up
(10:36):
last night because of you knowthe Israel Iran uh firing
yesterday at each other.
So um things like that have amassive impact on the market.
Um, so it just depends on whathappens there.
But you know, as long as thatceasefire can hold off and they
(11:00):
do a deal and the straits keepopen, um I think and before
winter, so inflation's notaffected too much and fuel, uh,
I think I think we can seehopefully a bank base rate of
somewhere between three andthree and a half percent.
But if inflation does startgoing out of control, I think
(11:22):
we're more likely to see a Bankof England base rate of between
four and four and a halfpercent.
So it's it's very hard topredict.
What should you do?
Should you have a fixed rate, atracker rate?
Again, that's that's down toyour appetite for risk.
(11:42):
Two-year fixed rate that mightjust see you through the turmoil
of the next two years, and intwo years' time, hopefully we
should see things settle and andback to a new normal.
Um but if we look at the lastfive years, we've had COVID,
(12:07):
we've had Ukraine, and now we'vehad this Middle East conflict,
you know, there are alwaysthings going on.
So if you want to take out allof those risks, um, well, really
typically the longest fixedrate you're going to get with
the majority of lenders is afive-year deal, and I would say
five year, and then you don'thave to worry about it.
(12:29):
Um, so yeah, those are youroptions.
Dr James (12:36):
Good to know, good to know.
Well, do you know what, Sarah?
Here's something um that I justwanted to add on top of all the
things that we said today,because obviously this has been
a really good summary of what'sgoing on in the world and how it
relates to mortgages and morespecifically how it relates to
the mortgages of dentists.
Tell me about interest-onlymortgages, because you know what
(12:58):
I always find intra uhinteresting, uh no pun intended,
about uh interest-onlymortgages is that the when I
talk to mortgage brokers, a lotof mortgage brokers have
interest-only mortgages, whichkind of tells you that how can I
say this?
There's a little bit of a cluethere that well, they might off
they might offer someadvantages.
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(15:06):
of this podcast.
Sarah (15:11):
Yes, so in interest only mortgages, you you need to have
typic well, you have need tohave a minimum equity of 15%,
but it depends on which lenders,the majority it's 25%, and it
depends on what you mean byinterest only.
Do you mean interest only andyou plan to downsize, i.e., sell
(15:36):
that property and downsize to asmaller property?
Well, then some lenders willonly do 50% of the value
interest only, uh the rest needsto be capital repayment, or or
you need to have 300k equity,you know.
So so yes, interest only is anoption, typically not an option
(15:59):
for first-time buyers, butagain, there are some lenders
that will do that for first-timebuyers.
Um but yeah, it's a it's it's agreat way.
My mortgage, my own personalmortgage, is interest only.
But that's because I wanted tohave a have a bigger house.
I don't have any children, so Ididn't want to be a mortgage
(16:21):
slave and um and then be payinga mortgage for for a large
property, and then when you cometo retire and downsize, you've
got a load of equity, and thenyou've got to get rid of it and
spend it because you don't wantthe tax fund to take it when you
(16:42):
die as well.
So um, so that was that was thechoice 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 equityin it to downsize to something,
you know, very comfortable whenI want to retire.
(17:03):
And and so that's that's howI've worked my interest only.
It's not for everybody, but youknow, centers tend to be quite
entrepreneurial, quite um quitesort of uh higher risk takers,
and and so therefore it it mightbe might be suitable to them.
Dr James (17:25):
Sure.
Or there's even the possibilitythat if you know what you're
doing whenever it comes to theinvesting side of things, that
you could take the money thatyou would have been repaying
into the mortgage, put it inyour ISA, grow it, uh hopefully
make a little bit of a profit interms of you having more cash
than what you would have had ifyou would have repaid the
mortgage, uh, and then take themoney out tax-free whenever the
(17:48):
principal is repayable.
And as I say, have enough topay off the house and also have
a little tidy little profit inthere too.
So there is that there is thatpossibility.
Sarah (17:58):
Um, you know, not so there's also um, you know,
tax-free lump sums.
Some you know, quite a fewclients have nice NHS pension
schemes, which they'll have uhtheir tax-free lump sum from
their NHS pension scheme thatcan be used as a as a repayment
(18:19):
vehicle for the interest only.
And yeah, you can use an ISA asa repayment vehicle.
Yeah, you know, um butpensions, pensions and ICEs are
good good examples becausethey're quite tax-efficient
going into them, aren't they?
Dr James (18:37):
Well well, there you go.
It's but it's all based on umproviding that stays the same,
that the rules around those forthe next X number of years,
there is a little bit of agamble there, of course, but you
can get a lot of house.
Um you can get a lot of houseuh for you know, you know, and
be in a position we don't haveto repay that much every month,
(18:58):
but it's just depends on whetheror not you're comfortable with
that.
Can you walk me through thatthing that you were saying just
a second ago?
I know I get that what you weresaying about how some lenders
will ask for typically a 25%deposit and some ask for 15%
deposit if you're going to godown the interest only route.
But what was that thing thatyou were you talked about
immediately afterwards, whichwas there seems seems to be some
rules around the equity.
Sarah (19:20):
So it yes, if if your if your plan, if your because
lenders need to know how thenmoney is going to be repaid at
the end of the term.
So if you do what they callpure interest only, are you you
haven't got a sales uh arepayment vehicle like a pension
(19:41):
or an ICE, yeah, you can say,right, the my repayment vehicle
is sale of my more of themortgaged property, the the home
that you're gonna give amortgage on.
Speaker (19:52):
Yeah.
Sarah (19:53):
No, um there's typically you need, I would say, I think
the lowest amount of equity thatany one lender that will give
it needs to be 150k in equity or25% of the value.
(20:14):
So so if you're buying at amillion or your property's worth
a million, you know, it's goingto be the 25% equity that you
you need to have.
Dr James (20:28):
Um do you mean do you mean in terms of the if if I've
understood this correctly, doyou mean the deposit?
Sarah (20:34):
Deposit, deposit or equity, yeah.
So 250k, and then you can havea mortgage of 750.
Dr James (20:41):
Yes, fine.
Yes.
Right.
Sarah (20:43):
But but but some lenders say that if if sale of um the
mortgage property is therepayment vehicle, they'll only
give 50% of the value.
Dr James (20:55):
Oh, really?
Sarah (20:57):
Um, but you can you can still go up to 75% to 85%.
The remainder has to be done ona capital repayment basis.
Dr James (21:07):
Yeah, so it you can have like a blended part and
part and part, yeah.
Sarah (21:11):
Yeah.
Dr James (21:12):
Ah, okay.
Interesting, because it's Ihave 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 thedifference or the pension.
Um obviously no one can predictthe future, but I'd I'd I'd
feel pretty comfortable withthat.
(21:32):
Um then have a little bit of atidy profit left over.
Because remember, if you knowwhat you're doing in your ISA,
your the stock market, I meanI'm just quoting averages here,
I'm not saying that this isgonna indicate future
performance for everybody, butthe stock market is said to
return 10% uh per year, whereasobviously the house is six
percent a year, and your debtmight be appreciating at a rate
(21:55):
of three percent a year.
Okay, so if you take the moneythat you would have used to
repay your debt, knock offinflation, you're making
basically 7% return net, okay?
Which is much better than whichis much better than what uh
well you by the time you've paidoff the principal, you're gonna
have more in there than youwould have done otherwise,
(22:16):
basically, versus just payingthe debt off continuously.
And I get that that's a littleabstract, but I'm happy we
should probably do some workedexamples on that one at some
stage.
But suffice to say suffice tosay 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?
(22:36):
You borrow a million pounds,you're repaying a million
pounds, right?
At the end, you're all square,okay?
But instead of repaying themillion pounds, if you then take
it and invest it for 20 years,okay.
I haven't done the math onthis, but you might have like a
million and a half, you can thenrepay the million and have 500.
Yes.
Now it doesn't work exactlylike that.
I'm just doing it for forsimplicity of understanding.
(22:56):
But that's the principle behindit.
Sarah (22:58):
Yes.
Yes.
And that's that's the thing,don't also forget, because like,
yes, okay, you know, in today'smarket, let's say interest
rates were five percent, uh, andyou're getting a 10% return in
your example.
Well, you know, you are.
You are up.
Um obviously markets can changeand you you you can go down as
(23:24):
well as up.
Uh um in that in but also theother thing factor is is if your
investment is staying ahead ofinflation, that million pound
mortgage is being eroded byinflation as well.
So although it's still sat at amillion pounds, over a 25-year
(23:46):
period, a million pounds 25years ago was a lot lot more,
you know, probably two and ahalf million in today's in
today's terms.
Dr James (23:57):
Yeah, we're gonna do the math, right?
But significantly.
And we're talking because it'ssuch a long time period, you've
got an you're actually whenyou're a borrower, inflation
works for you, not against you.
Yes.
Um obviously that also erodesyour final pot as well, because
the one and a half million inreal terms is maybe I don't
know, well, it's much less thanwhat it would have been if you
(24:19):
would have had one and a halfmillion 20 years ago, but
there's still a differentialthere that means that you're in
profit because that's theprinciple of how investing
works, it outpaces inflation,yeah?
Yes, um, yeah, or at leastwhenever you use the whole um
ETF strategy, um, which peoplecommonly do.
But yeah, anyway, not todigress, I just wanted to touch
(24:40):
on that.
I don't think we've ever talkedabout that in the podcast,
Sarah, and it's such usefulstuff to know.
Maybe if we have, it was a longtime ago, and it's worth saying
again because a lot of peopleon these podcasts who listen to
these are educated uh wheneverit comes to uh the the finance
and what have you.
So it's good to know thesethings are out there because um
I always remember uh this one ofthe one of my friends who
(25:04):
insisted that I read a book onfinance maybe like 10 years ago,
which kind of got me into thiswhole rabbit hole.
Um he was one of the exact samefriends that like a year a year
ago, he was like, Jims, haveyou heard of these things called
interest-only mortgages, right?
And he was absolutely how can Isay this?
Uh he was just besotted withthe idea that what he could do
(25:27):
with that.
And I was like, when you didn'tknow that.
I remember you showed me thisbook ages ago when you uh it's
kind of we've things haveflipped on their head here
because I thought everybody knewabout this.
So that was actually kind ofwhat inspired me to mention that
today in the podcast because Idon't think people know this
sort of stuff.
Sarah, have we done a reallygood job of rounding up today's
mortgage market today on thepodcast?
Speaker (25:46):
Yeah, yeah, we we we I I think I think we have.
Um obviously I'm biased.
Dr James (25:54):
It's okay to blow your own trumpet every once in a
while.
Sarah, if anybody wants toreach out to you off the back of
the podcast, how can they dothat?
Sarah (26:00):
Yeah, just um give us a call, 0203 633 888, or go to our
website, SarahHyphenGrace.co.uk, um, and you can
contact us through that.
Um and we've got lots of umlots of blogs, blog articles,
(26:21):
and we're having a bit of arefresh on our website.
So if you think it's uh it's uhit's a bit sort of out of date,
well don't watch this space.
It is uh it is in the processof being changed.
Um but there's a lot of uhuseful you know frequently asked
questions, that type of thingon there.
But yeah, just just reach outto us, get in touch.
(26:44):
We're always happy to help,happy to have complimentary
chats with people.
Um I've also got anothercolleague, Jordan, who um you
know she can she can helppeople.
She typically works with uh alot of first time buyers.
Um and so yeah, great.
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