Mortgages For Self Employed Dentists

Mortgages for self-employed dentists

As a dentist it is likely you have decided to go self employed as the potential to earn a higher level of income is greater. Mortgages for self-employed dentists can be more difficult to obtain, because most mortgage lenders will want you to have a history of being self-employed before considering you for a mortgage.

If you have been self-employed for a number of years you should find the process much simpler, however if you have recently turned self-employed or changed from sole trader to limited company, you may find obtaining a mortgage to be much harder.

However, there are lenders out there that can help you in this situation and so far I haven’t had a self-employed dentist who I haven’t been able to help because of their income set up.

Is it harder to get mortgages for self employed dentists?

No, it is not difficult to obtain a mortgage as a self-employed dentist. However, if you went into your local high street bank, your experience might make you believe that it is.

Due to your particular circumstances you might find you don’t fit their strict criteria or you can’t borrow as much money as you thought you might be able to. Using a mortgage broker who knows exactly which lenders to approach can really make a huge difference to your expectations.

What are the eligibility criteria for self-employed dentists seeking a mortgage in the UK?

What we find with a lot of clients we’ve helped in the past, and actually a few of my friends,
is that most NHS dentists are initially employed with an income of £30,000 to £35,000.

Later, they get an opportunity to go self-employed as an associate at a practice, and their income suddenly goes up. At that point, a lot of them suddenly decide they are now in a position to get a mortgage.

They’ve got that deposit building up. The income’s a lot higher and they can potentially go for a property. But if you’re self-employed, a lot of lenders want two years’ tax calculations and tax year overviews. And a new associate dentist often won’t have those because they’ve only just gone self-employed.

It’s a niche area, but there are potentially four or five lenders that can use your invoice slips if you’ve got those from the associate practice where you’re working. Potentially they will take those slips for the past three or six months and average and annualise that as your income.

You don’t then potentially need to use your tax calculations and tax year overviews. They’re looking at your income as it is right then – and that’s usually a lot higher, so you can get the borrowing you potentially need to buy that house.

What are the main difficulties for mortgages for self employed dentists?

There are many reasons why self-employed dentists have got in contact with me in the past. Below are a few real life examples which might relate to your experiences so far and how I was able to solve these.

Self Employed for 1 year or less

The most common problem I come across is when dentists have recently become self-employed. Most lenders will ask for at least two years proof of self-employed history with some even asking for three.

As you are now self-employed it’s likely your earnings have increased and you want to use this towards buying a house, but if you don’t have a history of self employment, the majority of lenders will reject you.

There are mortgage lenders that will consider your income via remittance slips you receive from the practice you work at. The more of these you can provide the better as it will give the mortgage lender more of an understanding of your earning potential.

Two separate examples of this included one client who had 12 months history and another who had 9 months history. For both clients I was able to secure mortgage options. For the 12 month client I was able to use the gross income across the 12 slips. For the 9 month client I was able to acquire an accountant projection which allowed the client to secure a mortgage.

Low net profits on limited company

This has happened for a few clients where the net profits on their ltd company does not reflect current earnings.

It is hard being self employed as your proof of income for mortgage lenders is always, at the very least, 12 months out of date. In those last 12 months you may have started doing work that is earning you more money, but how can you prove this?

This leads to many self employed dentists either putting off buying a property or not maximising their borrowing ability.

I have had some clients that have had this particular issue and again I have been able to secure a mortgage for them.

Again using remittance slips or an accountants projection can be used by some mortgage lenders to prove your more recent income and therefore borrow more money. This in turn helps you to buy a property more reflective of your current income.

Recent change from sole trader to limited company director

As if it wasn’t already tough enough being self-employed, the majority of lenders treat moving from sole trader to limited company as a similar situation to moving to self employed for the first time.

You will have some lenders that will use salary and net profits to prove income, whereas some will still use your salary and dividends. If you approach a lender that uses net profits you may be in a situation where you can’t evidence this yet as you haven’t done your first-year end yet.

This example is a little bit easier to solve. There are some lenders that will work off one year’s accounts and some will take into account your history of being a sole trader.

If you have less than a year’s accounts, it may be I would look at the remittance slip options or an accountants projection, but it would completely depend on your circumstances.

Can I get the best rate as a self-employed dentist?

This depends on your individual circumstances. Generally speaking if you have been self employed for years than you will be able to access all the mortgages rates on the market, provided you fit the credit profile and other lending criteria.

If you fit into one of the self employed profiles above then it is unlikely you can obtain the best rates on the market, however the mortgage lenders I have used for past clients have been very competitive and close to the best on the market at the time.

Can a dentist get a bigger mortgage?

As a dentist you will be classed by some mortgage lenders as a professional and therefore a range of professional mortgages can be offered to you by some mortgage lenders.

This can include enhanced borrowing, allowing you to borrow more and giving you greater flexibility in criteria. Just because you are a dentist doesn’t mean you have to have a professional mortgage, but it is a handy tool to have in your back pocket giving you more choices in the mortgage market.

What level of deposit will I need?

A 10% deposit will be needed as minimum if one of the above examples applies to you. If you are looking at purchasing a flat or a new build then a 15-20% deposit will be required.

The more deposit you have the lower the interest rate will be.

What documentation is required for self-employed dentists when applying for a mortgage?

It’s the usual ID, bank statements and proof of deposit. The proof of income depends on your situation, because you could have more than two years’ records in self-employed dentistry, in which case we can use your tax calculations and tax year overviews.

Some lenders could go off your latest year, so you might just need one set of documents. If that’s high enough for what you want, that will give you more options.

But if you’re in your first year of self-employment, or even your second year but you’re now earning more, we can use those invoice slips from your practice.

For this list I will be concentrating on income documentation that you should prepare so I can ensure the best possible outcome for you. Not all will be applicable to you as it does depend on your individual circumstances:

• Finalised Accounts (max 2 years if limited company)
• Latest Tax Calculation and tax overview (max 2 years if sole trader or limited company)
  Remittance slips (max 12 but as many as you have if less than 12)
• UDA Contract
• p60 if you have recently gone employed to self employed

How do lenders assess the income of self-employed dentists for mortgage applications?

It’s about getting them to assess it in the right way. If you’re self-employed, most lenders want your last two years’ tax calculations, which they’re going to add together, divide it by two, and then that’s your income.

If your latest year is lower, they’ll just go off that lowest year. But if your latest year is higher, there’ll be an average. That can work well in certain scenarios, or can mean getting a lower mortgage amount, especially with the main high street lenders.

Instead, if we can use your invoices, they’ll take an average of what you’re earning from the most recent three or six months’ records. For a lot of clients, that gives a larger mortgage so they can potentially buy a better property.

The invoice way of doing it is more niche, but it can give you a real boost with your income.