Mortgages for GPs

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Mortgages for GPs

Peter talks to us about mortgages for GPs.

Are there any special types of mortgages available for GPs?

There are, but not just for GPs – there are mortgages for professionals, and of course GPs would fall into that category. These mortgages are a little rarer nowadays, as lenders have pushed their standard criteria out a bit. So what was perhaps covered by professional mortgages in the past now falls more into the mainstream. 

One or two lenders still give slightly better rates on a professional mortgage compared to their normal products. A few will offer enhanced income affordability, so you can technically borrow a little bit more as a professional, because your income is that much greater. 

Since increased interest rates have made affordability more of an issue, many lenders have shied away from bringing out specific mortgage products. They will have specific mortgage underwriting rules, but most lenders wouldn’t have a different product for a GP or a professional.

Should GPs get a repayment or interest only mortgage?

I don’t think there’s anything in particular for GPs to determine that. Interest only mortgages do tend to suit higher income earners and professionals, so in that regard it could work. 

With an interest only mortgage, at the end of the mortgage term the balance will not have come down. You’ll have to come up with all that money to repay the loan. As a partner of a GP practice, when you leave that practice you might be entitled to a lump sum. Certainly if that practice owns the building and you’re a part owner, you’re probably going to get some of that back. So there is a potential repayment source there for an interest only mortgage. 

GPs, whether employed or self-employed, will get an NHS pension scheme, so you could also take lump sums out of that to repay your mortgage if needed. Generally, because GPs are higher earners, interest only could fit. I won’t suggest it’s the way to go, but there’s certainly a higher chance of it working for them.

Why might a GP consider an offset mortgage?

Again I’m going to refer here to GPs that are self-employed – either locuming or as partners in a practice. If that’s the case, they’re going to have a tax bill. It’s not deducted at source. 

I’ve dealt with GPs for many years and some practices will hold back the partner’s money for tax and deal with that for them – which is great because it removes the worry. But if your practice doesn’t do that and you have to save money for your tax, then an offset mortgage can work quite well. 

You’re going to build up a savings balance – if you put that in the building society it is going to be a couple of percent in interest and you’re probably going to get taxed on it. You can get taxed on your tax money, unbelievably! 

An offset mortgage is a very tax efficient place to put your money. I would add a caveat that offset mortgages are priced higher than other mortgages, so a good broker will analyse whether the ratio of savings to your debt balance makes an offset mortgage efficient or not. 

Although it’s a great place for your savings, it doesn’t mean it’s the right product. If you’re paying more on the debt that’s left, you could gain with one hand and give it all back with  the other. It’s our job to work that out. 

But it’s a potential option for anybody who’s self-employed – and particularly GPs where that income is probably higher.

Should doctors or GPs choose a fixed or variable rate mortgage?

On a fixed rate, your payments won’t change – but that mortgage will carry early repayment charges during the fixed rate period. So it’s not very flexible. 

With a variable rate mortgage, your payments can go up or down. Most of those don’t have early repayment charges – they’re a lot more flexible. You can repay the debt in part or in full and not be penalised. 

Of course individual advice will always vary. But, in general, a partner of a GP practice is likely to be settled. You tend to join a practice as a partner and probably not go anywhere else. You may be living in your forever home or certainly a very long-term home. That means fixed rates are probably a consideration, because you don’t need that flexibility. 

But if you’re a locum GP, who likes the flexibility or may not have found the practice that they want to join yet, maybe a variable rate with no penalties makes more sense. Until you know you want to settle in a certain postcode, you might want the ability to move at any time as an opportunity arises. 

There are a lot of other factors. You might be coming into a lump sum; you might want to do home improvements in the future… There are many reasons why those general rules won’t apply, but as a locum you could be in Portsmouth now and then in six months time you could be working in Manchester. You can go where you want to go and therefore that flexibility could be important.

How much deposit do GPs need for a mortgage?

It’s no different than a standard mortgage. The minimum deposit is generally 5%, but it depends what price you’re buying at. With purchase prices over half a million you’ll probably need a little bit – perhaps 10% or 15%. 

Even with our expertise, placing a GP mortgage can be a bit more difficult because of other complications. So the bigger the deposit you have, the lower the risk to the lender and the more open they are to a mortgage. 

The bigger the deposit anyone has, the better the interest rates they will get. But there’s no reason why a self-employed partner GP can’t get a 95% Loan to Value mortgage. For the self-employed or a locum doctor with irregular income, having a larger deposit is probably slightly more important than for an average borrower.

Do GPs need a mortgage advisor that specialises with doctors and partners in practice?

Absolutely. Let’s split this into the different types of GPs. 

A salaried GP at a practice is not particularly complicated. If you’re on a permanent contract, you’re like any other salaried person. Locum GPs are probably the most difficult, because it’s the same as being a self-employed bricklayer or plumber – you’re going to need two years’ worth of accounts to get a mortgage. 

We have got locums by with less before, especially if they are working predominantly at one practice on an almost permanent basis. 

The main type we see are GP partners. Many lenders don’t seem to realise that although  a GP partner is self-employed, it’s different to other self-employed professions. For example, GPs are the only self-employed people to participate in the NHS pension scheme. That’s how close they are to being employed. 

If you join a practice as a new partner, you don’t dilute the partnership profits because of the way practices work. You can’t compete with each other. There are so many sessions per week that the practice must cater for, so if you come along and do 10 sessions a week, you must be replacing somebody else’s 10 sessions so it doesn’t dilute the profit. 

Again, a normal lender might want to see two years’ figures, but even if you joined a practice last week, if it has been trading for years and years we can get lenders to look at it. 

They will work with the practice manager and accountant to find out what percentage of that practice you own and go from there. A standard broker won’t understand any of that. I’ve had plenty of cases where a GP has spoken to another broker who couldn’t help but we could. 

A self-employed partner GP is not like any other professional. it’s not even like a partner of a law firm or accountancy firm. We can easily work out what that person’s income would be based on the practice income for the last few years. But some lenders and brokers don’t necessarily understand that.

I’ve been doing this a long time. I remember when GP partners joined a partnership and had Steps to Parity. Now partnerships are desperate and there’s no such thing as Steps to Parity – you come in straight in on full income. We know how all of that works.

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What are the advantages and disadvantages that GPs face in applying for a mortgage?

It seems that I’ve been covering all the disadvantages, and there are numerous ones unless you have a broker who knows what they’re doing. 

But there are some advantages too. As I touched upon earlier, the moment you put your title as doctor on an application, you’re a professional. You instantly gain more reliability within lenders’ credit scoring systems, and even a human underwriter will see the risk go down. 

Your income is more secure, it’s higher, which is good for the computer risk algorithm – the credit score as we call it. You get so many points as you work through an application. Being a professional undoubtedly carries more points so there are advantages there. 

As you have a higher income as well, lenders will push affordability further. On a low income, getting even 4.5 times your income as a mortgage can be difficult. With a higher income you can often borrow five or even 5.5 times your income. So there are certainly some advantages. 

The disadvantages come for anybody who’s self-employed, but the good thing is that doctors’ income is far more predictable. You don’t see doctors twiddling their thumbs. They are so busy; with a shortage of doctors they are working incredibly hard. It means their income is very stable. The main difficulty is trying to get lenders to understand that – but we have a number of high street lenders that we can talk to about that. 

What income will be used to assess how much a GP can borrow?

For a salaried GP it’s very standard and based on your gross basic salary. A locum is probably going to operate as a sole trader, so once they have two years’ worth documents we can apply. One high street lender will take you based on one year’s records. 

We need your tax calculation, which you get once you have filed your tax return. The first line on that will list profit from self-employment.We either take one year of that with one particular lender or it will be averaged over two years – that’s the number that will be used. 

Some locums may operate through a limited company for certain tax benefits. Here, the vast majority of lenders will take your salary and dividends. If you’ve got two years’ history or more, and you’re not taking all the money out of the company, there are one or two lenders we can approach. 

Perhaps you’ve taken dividends of £50,000 from the company but it made £100,000 profit. You didn’t want to take more money because you would pay more tax. Those lenders will actually look at the profit you didn’t take. So your borrowing will be based on salary and profit instead. 

GP partnerships work very much like a sole trader. Instead of your profit from self-employment on your tax calculation, it will be your share of partnership profits – in effect it’s the same thing. 

So for most GPs your income is based on profit from self-employment or profit from partnerships, proven by tax calculations. In instances where you haven’t been there long, we’ll get accountants and practice managers involved to give us that same figure, just in a different format.

Are there any changes in how GPs are set up at work?

We’re seeing more and more salaried GPs, perhaps because they don’t want to be tied down to a practice or its premises. There will still be a practice partnership with at least one or two doctors that own the partnership,but it’s not unusual now to see a further eight or nine doctors working there on a salary. 

So although the ways a GP can get paid are the same as ever, we’re seeing more salaried GPs and less self-employed GPs these days.

If you’re considering your options, you should get an accountant’s advice. But if you earn as a partner, you’re probably going to have certain tax benefits.

But also, once you stop seeing patients at the end of the day, you might have partnership meetings to go to and you need to physically run the practice. You’ll have practice managers and others that take most of the weight of that for you. It’s weighing up tax efficiency versus the responsibilities and the pressures of running a practice. That’s probably why we are seeing less partners and more salaried GPs.

Will a student loan affect my mortgage?

Potentially yes. When a lender looks at affordability, the vast majority will use ONS data. They don’t care if you shop at Aldi or Waitrose, or if you holiday in Butlins or the Bahamas. 

They would just assess the size of your household and use average data. But they also bring in specific data into affordability – your childcare costs, school fees and credit costs. Student loans will fall into that, because student loan payments are based upon how much you earn. If your student payment loan payment is large, your income will be very large. 

On its own, it’s unusual to see a student loan payment change how much you can borrow. If you’re earning £80,000 and your student loan costs £250 a month it probably won’t make any difference to what you can borrow. But, if you’re earning £80,000 and you also have a £250 car loan, that’s £500 a month of credit. It might start to tip the scales and rein in the maximum mortgage.

You can get away with a certain amount of credit payments or childcare or school fees before the mortgage amount is affected. But if there are a few credit costs it could start to change what you can borrow. 

There are also different grades of debt for lenders. For example, if you’ve got £30,000 of credit card debt, that’s seen less favourably. Student loan debt is probably the best debt you can have – it means you’ve been to university and that’s qualified you to be a professional. 

Your payments are capped based on your income, so lenders generally don’t have a problem with it.

Do you have anything else we need to know about mortgages for GPs?

Lenders don’t make things easy. My colleague always says that when he started doing this job he had a head full of hair – and he hasn’t any more. We often know lenders’ criteria better than they do at times. 

We know where to place a difficult GP case. There are certain lenders I wouldn’t dream of approaching unless we had a long income history. In some cases we even know which underwriters to speak to about a case. Many lenders and certainly many underwriters don’t understand GP cases. 

So a mortgage advisor who’s got that experience will monumentally increase your chances of getting the mortgage you want. Plus, we will get it on the first attempt and at the best rate possible. That’s the key.

Your home may be repossessed if you do not keep up with your mortgage repayments.