Mortgage for Consultants with a Private Practice
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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.
Mortgage for Consultants with a Private Practice
Peter talks us through the mortgage process for consultants with a private practice.
Is there a specific mortgage for consultants with a private practice?
There aren’t any products specifically aimed at consultants with a private practice, but we can access lenders and underwriters who understand this area of work.
These would be mainstream products, so you’re still getting the best rates in the market from high street lenders. There are certain underwriters and lenders who either understand how your income works or will listen to us and then lend what you require.
Can you define what we mean by consultants with a private practice?
The types of private practice fall into several categories. Most consultants will be underwritten and treated as self-employed, but there are different approaches.
You could be a sole trader, where you work on your own and you will produce a set of accounts and receive the profits. That’s what will appear on your tax calculations.
Or, you may have a limited company, which attracts corporation tax. You will draw from your company a combination of salary and dividends.
What we often see is a partnership that runs like a syndicate. I’ve certainly seen anaesthetists do this, where you join a partnership and distribute the work between the various doctors or consultants within it. You’re pooling your resources in accountancy and admin, and you’re all working.
On your tax calculation, we would see you receive a share of profits rather than all of the profits.
How quickly after making partner can I use the income for a mortgage?
Generally speaking, with the kind of syndicate I just mentioned, that partnership has probably been trading for some time. You join that practice and gain access to a share of those profits.
It depends a little bit on how you work. You may need to build up a bit of a track record. You might, for example, become a 10% partner in that practice and receive 10% of the profits. That’s a bit easier. A bit like a GP, we can often get that through before you’ve necessarily got a year’s worth of figures.
But generally the minimum is probably a year’s records, and preferably two. It depends how much the underwriter needs to rely on that source of income.
For example, you might be expecting to take £100,000 in the first year from that source of income, but to get the mortgage through we only need £20,000 of it. In that case, we might get it through earlier, because we’re not pushing it to the max.
Can I factor in dividends for a mortgage?
This applies if you’ve taken the limited company route. If you are taking income from a limited company structure for your private practice, most lenders will look at your salary and dividends. They appreciate that the difference between the two is about efficient tax planning. You can’t receive either of those without making the money in the first place.
In private practices that generate strong profits, a consultant may draw a wage and dividends but not take out all the profits. If they do, they’re going to pay even more tax.
Some lenders will look at the limited company accounts and, although you might take a wage and salary of say £60,000, you made additional profits of £40,000 that you didn’t take out. In those circumstances, some lenders use the £100,000 total, even though you didn’t draw the full amount.
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Can I borrow more than five times my salary with a private practice consultant income?
Affordability comes down to many factors: level of deposit, outgoings and credit. Generally yes, you can borrow five times your salary, because those with a private practice will generally have a high income, probably in excess of £100,000.
When you’re earning that amount of money, some lenders will lend in excess of five times your income.
The only caveat is if your children have private school fees or there are other significant outgoings. That is treated as a credit commitment, which might pull you back below five times income. But if there are no commitments, in excess of five times is absolutely not a problem.
What deposit do I need for a mortgage as a consultant with a private practice?
The mortgage market minimum deposit is 5% – but the more deposit you put down, the better the rates you get.
In theory, a consultant with a private practice could get away with a 5% deposit, but as the purchase price goes up, certainly above £500,000, lenders will want you to put more money in.
I would usually expect a consultant who’s got an NHS salary plus a private practice probably wants to use both sources of income to buy higher than £500,000. At that point, I would say your minimum deposit is likely to be 10%.
With purchase prices of £800,000 to over £1 million, we might even need 15%. A few lenders would work on a 10% deposit at that level, but to open up the whole market it’s best to have more.
Is an interest only mortgage a good option for a newly promoted consultant?
With any interest only mortgage we can’t really give generic advice. We have to make sure it’s right for each individual. But the chances of it fitting a consultant with a private practice is definitely increased.
A private practice, self-employed income can often be a bit variable. An interest only mortgage that allows you to overpay when it’s convenient to you is quite useful.
You might draw a certain amount of profits out of the practice in one lump, and immediately knock it off your mortgage. An interest only mortgage that comes down through lump sum reductions could be very attractive.
How do lenders assess eligibility for consultants with a private practice?
As I mentioned, the way they underwrite self-employed income differs for a sole trader, a partnership and a limited company. But most consultants that have a private practice also have an NHS salary. So there are immediately two sources of income.
Some lenders are short-sighted and won’t use all of the second source of income, so obviously we prefer not to use those ones. We want a lender that’s going to use the entirety of both income sources. Generally, that’s not a problem, although if a doctor was doing bar work at the weekend, that would be different.
The doctor’s income still makes up a typical working week. Lenders can worry about burnout if you’re working all hours for the NHS and then working evenings and weekends in private practice. But they understand that while it’s still a pretty full working week, that is maintainable.
The employed income is straightforward. Lenders take your basic guaranteed salary and a percentage of any variable elements. They will then add to that from the private practice to give a combined income. That’s dropped into the affordability calculator and determines whether the mortgage is affordable.
How long does it take to get a Decision in Principle for a consultant with a private practice?
It’s no different than for anybody else. It takes us probably half an hour to key it in and 60 seconds to get the result.
What can lengthen the process is that we need to key in the right information. For an employed applicant, I would ask for three months’ pay slips to determine their income. Knowing your self-employed income often requires you to go back and speak to your accountant. They may need to download documents from HMRC – or don’t even have the accounts done yet.
To put me in a position to get a quick decision, you need the information from your accountant to be up to date. How long that takes will depend on your accountant, what time of the year it is and how busy they are.
What else do we need to know about mortgages for consultants with a private practice?
A broker that specialises in those professions is a big help. Although a private practice income is self-employed, it’s very different from that of a bricklayer or a plumber.
It is a professional source of income, and often the limit to your earnings in private practice is how many hours there are in the day. It’s not difficult to find work, and some lenders understand that.
So if you’re coming along with a five or 10 year track record of that private practice income, it’s straightforward. But if you’re early on in that process, generally that needs a bit of creativity in talking to lenders. That’s definitely where a good quality broker can help.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
