Locum Doctor Mortgage

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High Street Mortgages

Mortgages For Professionals with complex incomes through the main high street lenders

High street lenders typically provide more appealing rates, making them the preferred choice for many professionals seeking mortgage solutions. However, navigating the complexities of professional incomes can present challenges in securing loans from these lenders.

Professionals often assume they must seek alternative lenders due to the intricacies of their income streams. Yet, armed with a deep understanding of various payment structures, we confidently facilitate successful mortgage applications with high street lenders.

In fact, a substantial 93.4% of our mortgage applications are seamlessly processed through reputable high street lenders, showcasing our expertise in navigating complex income scenarios.

Locum Doctor Mortgage (Part 1)

Peter Stokes joins us to talk us through mortgages for locum doctors. Episode one of two, recorded in May 2024.

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.

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Locum Doctor Mortgage (Part 2)

Peter Stokes is back to continue the conversation on mortgages for locum doctors. Episode two of two, recorded in May 2024.

How does the process of obtaining a locum doctor mortgage differ from a regular mortgage application?

In many ways they’re the same. The key things are to verify income and outgoings and to value the property as security for the lender. That’s all quite straightforward.

The difference is the income source. Locum doctors will either be employed on PAYE or self-employed. PAYE will produce monthly or weekly pay slips, and we try to demonstrate sustainability and regularity of that income.

If you’re a self-employed locum, you normally need a longer track record. It’s not unusual to require two years of records for that kind of income.

Are there any challenges or considerations that locum doctors should be aware of when applying for a mortgage?

That two year track record is one, although with one or two lenders we can get away with just your first full year’s accounts. They are high street lenders, but it does limit our choices.

Being an employed locum is probably more common, nowadays. You might want to maximise your income, which requires showing that regularity. It’s much easier to get a mortgage agreed if your last three months’ earnings have been steady rather than moving up and down.

If you earned £15,000 for three months and then suddenly had two or three months at £2,000, there could be difficulties. Banks all have to demonstrate responsible lending and that would be checked if there was ever a problem on the mortgage. Was it responsible to lend to somebody with such variable income?

Some doctors issue invoices or have to put in their timesheet to get paid – and irregular income can also come as a result of not billing regularly. Keep up-to-date with that.

We often come across somebody who’s generally paid weekly but there can be a few gaps – where they’re not paid one week and then the week after they’re paid twice as much. Although it’s still the same level of income, that’s not helping with the regularity.

What steps can locum doctors take to improve their chances of securing a mortgage?

Obviously I could just say you should try and work regular hours. But that’s not helpful – you do what you can. But certainly regular invoicing or billing is a big help.

A three month period is 13 weeks, and having 13 weekly pay slips is much better than having nine or ten. Obviously it’s not always in the doctor’s control to get paid weekly, but it certainly helps.

From a self-employed point of view, if you’ve only just got a two-year record, the sooner you can get your accounts in and done, the better. It often takes an accountant several weeks to prepare those accounts. You want to be coming along on the 6th of April, just after the tax year ends, and asking for those accounts. The sooner your accounts are in, the sooner you could apply for a mortgage.

Can locum doctors who work through limited companies still qualify for a mortgage?

Yes, and we’re seeing this more often. There are obviously some tax advantages with that. It’s not a problem at all. You’re still treated as self-employed and most lenders will look at the income you take from your company.

You probably take a salary and then dividends. You might not take all the money out, which is not unusual – because you have to pay extra tax on it. Most lenders will just look at what you’ve taken out.

Let’s give an example. Say your limited company made a profit of £100,000 and you took £10,000 as salary and £60,000 as dividends. Most lenders will take your income as £70,000, even though you left another £30,000 in the company. But we do access a few lenders that will look at the accounts instead.

They will take that extra £30,000 into account. So just bear that in mind. If you’re trying to maximise your income, you don’t have to take it out – but if you don’t, it will limit the choice of lenders that might be able to help you.

How do locum doctors’ mortgages handle variations in income levels over time?

A lender will look at a longer track record for the self-employed. They don’t tend to pick up on these variations, because they’re presented with a single figure for the entire year. They’ll presume you’ve earned that figure divided by 12 – even if that’s not the case.

For an employee, they will look at a longer period of time. I did one recently where we had to give a year’s payslips. The doctor was paid weekly, so they had to provide 52 payslips. We were pushing affordability, so for the lender to gain that confidence they wanted to see his income over a longer period.

So bear that in mind – if your income varies a lot you may well have to give a longer track record than the average borrower.

Do locum doctors have access to the same range of mortgage products as salaried doctors?

Yes, they are certainly the same products. We start with standard, ordinary products which tend to produce better interest rates. We may also look at specific professional products which strangely sometimes have higher rates but offer more flexible underwriting. Any doctor will be able to access all of those.

Where a locum doctor is often going to struggle is to get the same quality of underwriting as a non-locum doctor. That’s where we have to paint a picture and give the lender the confidence to treat you the same way.

Are there any potential drawbacks or disadvantages to consider for locum doctors looking to get a mortgage?

The main one comes back to the income and how long you’ve been doing this for. A locum doctor might have left a salaried role in a hospital and decided to go locum. If they’ve only got two months worth of pay slips, that’s going to be difficult.

However, many doctors move from one role to another. You might have taken a new permanent contract or two-year contract – and if you’re two months into that, there’s no issue. A lender knows that the gross basic pay is going to be exactly the same from one pay slip to the next.

Whereas with a locum doctor, there’s every chance it could differ, depending on how many sessions or hours that doctor works.

So the main difficulty is income related. But if I have a locum doctor who’s been doing this for 10 years and they could give us P60s or accounts, the lender’s going to feel confident about regularity of income. If you’ve just been doing it for a few months, that is where it becomes difficult.

Can locum doctors remortgage their existing property to take advantage of better rates or terms?

Yes – you could arrange remortgages and rate renewals and if you want to withdraw additional capital at that point it’s not a problem.

With anybody withdrawing capital from a property on a remortgage, the lender will ask what the money is for. If you want to remortgage to raise money for a tax bill, that’s going to be a problem. But if you want to build a conservatory or do other home improvements, no problem.

The same rules will apply about proving the income and expenditure, but generally there’s no problem at all.

What options are available to locum doctors who wish to buy a property jointly with a partner or spouse?

Again, there’s no real difference. If you’re buying with a partner who’s earning, both incomes will be taken into consideration. That may help.

I’ve recently had a case where there were two doctors looking for a joint mortgage. One was in a salaried role and one was a locum. Proving that locum doctor’s income was difficult, so I positioned it differently.

The locum doctor was earning about £70,000 and we decided to maximise the borrowing on the salary doctor’s role. We then only needed £25,000 from the locum doctor to make up the affordability. The underwriter suddenly took a different view and agreed. They didn’t need to stick their necks out on the locum salary so the income sustainability became less important.

The opposite to that would be if the spouse is a homemaker. In that case, they will be treated as an adult dependent. It’s advisable to put them on the mortgage, because it must be in the same names as the property – but also that means that when working affordability out there’s an extra mouth to feed. Having a dependent – whether it be adult or child – could bring down the maximum mortgage amount.

Are there any specific mortgage lenders that specialise in mortgages for locum doctors?

There are one or two that have specific products for recently qualified doctors, whether that offers a slightly lower rate or enhanced affordability – because they’re lending against future income increases.

There are some lenders with special criteria or a better understanding of the medical profession – these are therefore more likely to do the mortgage, but it’s still at standard rates.

Some high street lenders that I know have been a complete nightmare when it comes to doctors – they just haven’t got a clue. But with other high street lenders we have good relationships and their underwriters are much better. The criteria allows them to do more in the first place, so while they don’t specialise in locum doctors, they have a greater understanding of them.

How can a broker help with locum doctor mortgages?

We deal with all kinds of professionals, but locum doctors certainly need the services of a good mortgage broker who understands how the profession works. We know how to manage that irregularity of income, whether it be self-employed or employed.

An employed doctor working in the NHS on a fixed-term contract for two or three years carries its own complications too. And for somebody who’s not contracted at all and is just working from day to day for a set amount per shift, that really would require a good broker to get their case through.

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