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If you’re a self-employed doctor or thinking about going self-employed, you may be wondering what impact your income type has on your mortgage options. In this guide, we explain everything you need to know about mortgages for self-employed doctors.
At Strive we secure mortgages for self employed doctors, surgeons, consultants, and other healthcare professionals. We work with NHS trusts across the country to provide mortgages for NHS staff.
Types of Self-Employed Doctors
The employment structures of doctors can take several forms, and each type may be underwritten differently for mortgage purposes. Here are some of the types:
- General Practitioners (GPs): Self-employed GPs may run their own practices or work as partners in a group practice. Their income can fluctuate based on patient numbers and practice expenses.
- Private Consultants: Private consultants offer specialised medical services outside the NHS. They may operate their own clinics or work in private hospitals, with income varying based on patient consultations and treatments.
- Locum Doctors: Locum doctors work on a temporary basis, filling in for other doctors. Their income depends on the number of locum shifts they take, which can vary widely.
- Surgeons: Self-employed surgeons often work in private hospitals or have their own practices. Their income is linked to the number and type of surgeries performed, which can lead to significant fluctuations.
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Self-Employed Setups for Doctors
As with any self-employed individual, doctors can operate under various structures for tax or accounting purposes. Here are some common setups:
Partnerships
Some GPs and other doctors may work in partnerships, where they jointly own and manage a practice. In these setups, the income is typically based on the share of the practice’s profits. Most lenders will take an average of the net profit over the last two years to assess income for mortgage purposes. If the profit is on a level or increasing trend, this average is used; if the profit is decreasing, lenders may consider the most recent year’s figures.
Limited Companies
Doctors who operate through a limited company, such as consultants or private practitioners, often draw a salary and dividends from the company. When assessing income for mortgage purposes, lenders will usually consider the combination of the director’s salary and dividends, or sometimes the share of the net profit along with the salary. As with partnerships, a two-year average is typically used to determine income stability.
Sole Traders
Some doctors, particularly those in private practice, may operate as sole traders. For these individuals, lenders generally use the average net profit over the last two years. If the net profit shows a consistent or increasing trend, this average is used for underwriting; if the net profit is decreasing, the latest year’s figures may be taken into account.
Locums & other self employed set ups
Doctors may also have other unique self-employment arrangements, such as working as independent contractors or locum doctors. For these setups, income assessment can vary, but the general approach of averaging income over two years applies.
Working with a broker that understands the specifics of your employment structure and how lenders will assess your income can help you prepare for the mortgage application process and improve your chances of securing favourable terms.
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Using Company Profits Instead of Salary and Dividends
The vast majority of lenders use salary & dividends as income for company directors, this can lead to instances where you can borrow far less than your earning power for not drawing down on your company profit. However, some lenders will consider company profits along with salary instead of just salary and dividends. This can lead to more generous borrowing outcomes for those who don’t draw down all their earnings. Below is an example of a sole director of a company earning £100,000 in profit but only drawing £50,000 in salary and dividends. Here’s a comparison of the two methods:
- Standard Method (Salary and Dividends)
- Income- £50,000 (salary and dividends)
- Income Multiplier: 4.5
- Maximum Borrowing: £50,000 x 4.5 = £225,000
- Share of Net Profit)
- £100,000 (total profit)
- Income Multiplier 4.5
- Maximum Borrowing: £100,000 x 4.5 = £450,000
By using the total profit of £100,000 instead of just the £50,000 drawings, the borrowing potential increases from £225,000 to £450,000.
How Long Do You Need to Be Self-Employed to Get a Mortgage?
Most lenders require at least 2 years of self-employment history to consider a mortgage application. However, some lenders, particularly specialist ones, may consider applicants with just 1 year of self-employment history. A few mainstream lenders also offer this flexibility.
Self-employed doctors often have a track record of employment before transitioning to self-employment, such as moving from an employed doctor position to running their own surgery. This prior employment history can improve the chances of securing a mortgage with only 1 year of self-employment, as lenders recognise the stability and continuity in the medical profession.
How much can you borrow as a self-employed doctor?
Due to the high earning potential, self-employed doctors can often unlock higher than average income multiples when applying for a mortgage. Generally, you can expect to borrow around 4.5 to 5 times your income. However, if you have high earnings, typically above £75,000 to £100,000, you may be able to borrow up to 5.5 times your income, subject to your deposit and other financial factors.
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For example, a doctor earning £100,000 annually might be able to borrow between £450,000 and £550,000, plus the deposit. This higher borrowing potential reflects the stability and future earning prospects associated with the medical profession.
How can Strive help?
At Strive, we understand the unique financial situations of doctors. We specialise in connecting you with lenders who appreciate the nuances of your income and employment contracts. Our goal is to find the best mortgage terms and rates tailored to your needs, whether you’re a junior doctor, locum, or consultant. With our expertise, we simplify the mortgage process, making it easier for you to secure a mortgage that fits your career and financial goals. Let us help you navigate the complexities and achieve your homeownership dreams.
Frequently asked questions
Yes, it is possible to get a mortgage up to 5.5 times your income, particularly if you have high earnings, typically above £75,000 to £100,000. This is subject to factors such as your deposit size and overall financial profile.
Yes, some lenders, particularly specialist ones, may consider mortgage applications with just 1 year’s accounts. This is more likely if you have a solid employment history prior to becoming self-employed, such as transitioning from an employed doctor position.
While doctors rarely receive special discounts solely for being in the NHS, their stable and high earning potential often makes them attractive borrowers. This can help in securing competitive rates, but generally, the rates are similar to those available to other professions who meet the eligibility requirements.
Contact us today, and we’ll work hard on your behalf to find you a competitive mortgage.
For more information on mortgages for contractors, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.
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