Locum Doctor Mortgage

What is a locum doctor mortgage and how does it differ from a regular mortgage?

There are no specific products purely for locum doctors, but there will sometimes be products for professionals. These tend to offer increased lending amounts, above the norm, or the lender could be more understanding about that professional’s job and income.

Underwriting a professional for a mortgage can sometimes be a little bit more complicated. A locum doctor definitely comes into that category, because of the way their incomes work. Some high street lenders could look at that and be scratching their heads and wondering what to do.

Professional products could help, but we would often be able to place a locum doctor on a standard mortgage, where the rate is probably better. We still access common-sense underwriting for even the most complicated cases.

What are the eligibility criteria for locum doctors to qualify for a mortgage?

That would probably depend on what type of locum doctor you are and how you get paid. You might fall into a PAYE employed category, on something similar to a zero hours contract. There are no set hours, you work the hours you want but you will receive pay slips with tax and national insurance deducted.

The other type of local doctor will be self-employed, perhaps as a sole trader or as the owner of a limited company. Both of those types come with complications for the lender.

In terms of criteria, from a self-employed point of view you normally need two years’ accounts – although that’s not always the case. We’ve got cases through without.

With the PAYE route it’s about proving sustainability of that income – we normally want to see at least three months’ or quite possibly six months’ history of your earnings. Some lenders may even push that out to 12 months.

There have been cases in the mortgage market where people will work extremely hard for the three months before applying, to push their income up. Lenders are trying to avoid that, by looking at a longer average period.

What kind of documentation is usually required from locum doctors when applying for a mortgage?

There are the normal things like ID, bank statements and proof of deposit. It’s the proof of income that is different here. If you are a salaried GP it tends to be three months’ pay slips – and some lenders only ask for one pay slip.

If you’re a PAYE locum doctor in that zero hours contract situation, you need details over a longer period because of the irregularity of that income. They’re going to want greater reassurance that the income is sustainable – so be prepared to be asked for at least three months’ payslips, but probably six or even 12.

From a self-employed point of view it doesn’t differ quite as much. It’s the same as for any self-employed professional. You’re either going to need two years’ trading accounts for your limited company, or if you’re a sole trader you may also need to download your last two years’ tax calculations and tax year overviews from HMRC.

One or two lenders might work off of your first year’s figures, so it doesn’t have to be two years, but you’ve got to prove that income.

The only other thing you may be asked for if you’re contracting to one surgery for a long period of time, is a copy of your contract. We’ve had that before. So the main difference is how you prove your income, depending whether you’re employed or self-employed.

Are locum doctors treated differently by mortgage lenders compared to salaried doctors?

A locum doctor and permanent doctor are not treated all that differently. First of all, you are a doctor, you’re a professional, so that gives you big points on the credit score. Lenders want to lend to you. You are considered to be safe.

The main difference will be how much proof of income you need. As a locum doctor you may need a little bit more – but don’t think that if you’ve only got nine months’ pay slips you won’t get a mortgage.

Can locum doctors with irregular income patterns get approved for a mortgage?

Absolutely, that itself shouldn’t be a problem. The main question is how much you can borrow. If somebody wants to borrow two times their income and they’ve been locuming for three months, it’s probably not out of the question.

If they want to borrow over five times their income, a lender will probably want more proof of income. So it’s not a problem to get a mortgage. What becomes more difficult is getting the biggest mortgage possible. That’s where we have to perhaps work our magic a little bit.

Are there any specific mortgage products or deals available exclusively for locum doctors?

There are still some professional mortgage products out there. Lenders might have professional products where the rate is ever so slightly cheaper. Mortgage providers already cut their margins to the minimum. It might be something like 0.05% lower, so there’s not a great deal of difference.

What’s more likely on a professional product is enhanced affordability. You normally have to be within so many years of qualification – perhaps five or 10 years. The reason is that If you’re five years from qualification you’re still on quite a rapidly increasing pay scale. In effect, lenders are using some of those future pay increases.

So while your borrowing might be five and a half times your income today, by the time your fixed rate ends it’ll only be four and a half times your income – because your pay is going to have gone up so much in that time.

Locum doctors that fit into those criteria will be able to access that. Underwriting varies from lender to lender, but there is the potential to access larger mortgages on professional products.

What factors do mortgage lenders consider when assessing the affordability of a mortgage for locum doctors?

The key things are the sustainability and regularity of income. That’s what will differ from other borrowers. What they insert into the affordability calculator will be a certain income figure per year, and how you get to that number will vary from lender to lender.

Other factors go into affordability, and these apply to everybody. It’s not just your income – it’s also your expenditure. Some will go into great detail while others just want to know about your credit, school fees, childcare costs, perhaps council tax – that kind of thing.

The term of the mortgage is another one. If you’re borrowing the mortgage over 10 years you may not be able to borrow as much as if you’re borrowing it over 35 years – because the payments are much more expensive over a shorter term.

The final one would be the deposit. The bigger the deposit you have, the lower the risk for the lender – so they’re prepared to go a little higher with the lending. They will also give you a better interest rate, which means cheaper payments.

How does the income of a locum doctor affect the amount they can borrow for a mortgage?

Obviously, the more you earn, the more you may be eligible to borrow. But the regularity of that income is important. If you have earned £5,000 for the last two months, but £2,000 in the two months before that, that’s where some issues could come in.

If you’re earning similar amounts each month over 12 months, you really shouldn’t have any problems at all. Some lenders won’t want to say that you’re on a zero hours contract, but they will use your income as if you were.

From the self-employed point of view, it gets slightly strange because your accounts or tax calculations don’t reflect a monthly income. They state a total income for the year, which is why you normally have to have two sets.

So if you’re self-employed and your earnings flip from £5,000 one month to £2,000 the next, the lenders don’t see those irregularities. They just use an annual figure. But generally, the more regular the income, the more likely you are to get that good sized mortgage.

Can locum doctors get a mortgage without a substantial deposit?

Yes. There’s no reason why any borrower shouldn’t be able to get a low deposit mortgage. But the deposit is crucial for a few reasons. Obviously, lenders like you to be putting more money in. It’s a bigger commitment from you in the first place, and it reduces their risk.

Should you not pay and they have to take the property back, with more equity from that bigger deposit they are less likely to lose money.

If your deposit is more than 25% they don’t have to do as many checks, so there are cost savings. The benefit to you as a borrower is that you will get a lower rate and be more likely to get the mortgage. And, of course, the more you put in, the less you have to borrow and the lower your monthly commitment will be.

You can never have too much deposit. The bigger, the better, and I would generally try and aim for 5% bandings – 10% is better than 5%, 15% is better than 10% and so on. Past 25% it doesn’t tend to make much difference, unless you can get up to 40%.

Are there any additional fees or charges associated with mortgages for locum doctors?

The only thing that springs to mind is if you’re a self-employed locum doctor and you haven’t got the two years’ accounts, it’s not unusual for lenders to ask for an accountant’s letter to support your application. It might be either a projection or a clarification of terms.

With the best will in the world, your accountant isn’t going to write that for free. So there might be some accountancy costs to bear in mind.

Generally, if we’re accessing high street lenders we would aim for the products with the least fees possible. Having said that, doctors’ incomes are higher and therefore their mortgages tend to be bigger. Some lenders are now offering slightly better interest rates that come with slightly higher arrangement fees.

Do you have anything else to add before we end part one of these episodes?

I’m a mortgage broker that specialises in the medical profession, and I do find that locum doctors have been some of the toughest to get through. We do get them through, but it often requires more work.

So a good mortgage broker that knows their way around a locum doctor’s pay structure and how it works is crucial. If you go to see a bank direct, the likelihood is that they will treat you as a zero hours contract worker if you’re employed.

If you’re self-employed, they will underwrite you the same way as a bricklayer or a plumber. We could get them to look beyond that and see you as a professional. We’ll help position the regularity of your income, so that they aren’t wondering where you’ll be working next week and if your earnings are sustainable. Going direct could make that very difficult.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.