Over the course of an 11-part series, the 4dentist group will explore ways to tackle a number of personal and professional challenges by providing advice and guidance to fictional character Dr Mo Lar (see what we did there?). In this article, the third in the series, we will explore the different options available to dentists like Dr Lar looking to get on the property ladder.
Dr Mo Lar has been working as an associate for several years now, which means he finally has the capital to purchase his first home – the next duck in a row in his life plan. Currently, he is in rented accommodation, but by buying a home, Dr Lar will get himself on the property ladder which, in turn, will help ascertain financial security for the future.
Altogether, embarking on the adventure of home ownership is very exciting, but Dr Lar will do well to remember that it can also be extremely stressful – it is, after all, one of the biggest financial commitments that he will ever make. As Dr Lar will need to take out a mortgage on the property – which is the case for the majority of buyers – he will need to decide which type to choose. Seeking expert advice on the kinds of mortgages available and weighing up your options beforehand can be hugely beneficial when purchasing a home.
One of the main types that Dr Lar should be aware of is a repayment mortgage, which is where the lendee is required to make a monthly payment to the lender repaying some of the capital alongside interest. There are a number of advantages to choosing the repayment option, including the fact that it limits the risk linked to taking out a mortgage, is simple to understand and follow payments, and as long as one keeps up with the repayments, the mortgage will be repaid at the end of the term. Potential disadvantages are that there is no possibility of additional investment returns, limited chance of repaying the loan early without increasing the monthly payments, and if you move house frequently, it is very difficult to build up equity in the property in the initial stages as repayments mostly consist of interest.
Another option to consider is interest-only mortgage, which is where the borrower only repays the interest on the loan each month and the amount that is owed remains the same throughout the duration of the mortgage repayments. The way that this works is when the mortgage term reaches its end the lendee is required to pay back the principal amount – though, to do so the lendee must make sure that they have saved enough money to be able to repay the loan. Again, there are a number of advantages and disadvantages to taking out this kind of mortgage on a property. For instance, it provides the opportunity to make a return on the investment, there is the option to repay the loan early and, what's more, it is easy to move the mortgage without disrupting the payment plan. On the other hand, one’s ability to repay the loan is dependant upon the investment performance of the savings vehicle that has been chosen, so the risk is considerably higher than a repayment mortgage. Plus, there are two separate payments to keep track of – one to the lender and the other to the investment company – which can be confusing and stressful. The other option available to Dr Mo Lar and other buyers would be a mix and match mortgage, which is exactly what it sounds like; you choose a combination of mortgages to spread the risk.
Whatever type Dr Lar chooses, it is crucial that he takes into consideration exactly how much he can afford, both now and in the future. If he is looking to become a practice principal or start a practice empire, for instance, this might impact upon his finances and how much he can pay. Dr Lar would also need to think about how his plans to start a family would affect his mortgage affordability.
The other factor that Dr Lar would need to give thought to is how being an associate will impact upon finding a mortgage. When dealing with self-employed dentists, most lenders will request a minimum of two years’ accounts as the affordability assessment is based on net pre-tax profit and not the turnover. As such, accurate record keeping is essential, and it is for that reason that it can pay to utilise the services of a specialist accountant.
For the actual acquisition process, it is essential that the buyer employs either a solicitor of licensed conveyancer to deal with the legal aspects of the transaction. There are a number of different options available from internet-based companies to traditional high street or larger commercial firms, and costs can vary significantly from one to the other. Ultimately, buying a house is one of the most expensive purchases that Dr Lar will ever make, so it is important that he chooses the right team to represent him during his purchase. Further to that, it can pay to use a company like the 4dentists group that offers accountancy, legal and financial services all one under roof.
Dr Lar is making a huge commitment buying his first home, but with concise and well-informed professional advice, he can achieve his goal in a relatively stress-free and uncomplicated way.
Next issue: How Dr Mo Lar can legally reduce his tax bill.
Posted by Gemma