Mortgage for Dentists

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Mortgage for Dentists

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 Dentists

Mortgage for Dentists (Part 1)

Brian Keane talks to us about mortgages for dentists. Part one of two, recorded in June 2024.

How do mortgages for dentists work?

The good news is that they’re just like any other mortgage. You might have the mortgage on a repayment basis, so the balance is gradually coming down, or some lenders might let you take interest-only on part of the mortgage. Then you can tackle the repayment of that part in the future.

What are the eligibility criteria for obtaining a mortgage as a dentist? Will my credit score and financial history as a dentist impact my mortgage eligibility?

The assessment for a mortgage for a dentist is exactly the same as for other clients. Lenders want to make sure they’re happy with the property you’re looking to buy, and there’ll be various criteria around that.

They’ll also assess a dentist’s affordability for the mortgage, so that by borrowing the money, you’re not going to struggle financially. Lenders will also look at your credit record. They’ll apply their own internal credit score system, rather than use anything available externally.

They’ll apply weight to various different matters. They’ll look at your financial history, and if there are no missed payments, bills are paid on time and there’s no heavy usage of a credit card, lenders will generally be happy with that. So credit score does impact things, but it’s the same as for every other person looking for a mortgage.

In terms of proving affordability for a dentist, it’s much more straightforward if they are employed by a practice and receive monthly pay slips. You would just need to provide those payslips, and perhaps a P60 showing total earnings last year.

But the majority of dentists are either associate dentists or principal dentists, which means they are self-employed. They might be sole traders, be in a partnership or have their own limited company. Their proof of income will vary according to how their income is made up. Any self-employed dentist will be asked for their last couple of sets of financial accounts.

There can be a number of ways that lenders will look at your earnings. They may look at salary and share of pre-tax profits, while some lenders look at salary and post-tax profits. Some will take the salary and any dividend income from the company.

Certain lenders average the last couple of years figures, while others will just take the most recent year’s figures into account. There’s no set formula. A broker will give you a good steer on what you can borrow and how much it’s going to cost to pay it all back again.

Do I need to be a fully qualified dentist to be eligible for a mortgage?

No. Provided you’ve got a stable income stream, lenders will consider that, whether you’re a fully qualified dentist or not.

It does sometimes benefit people to apply once they are fully qualified, because some lenders recognise that dentists have a good stable and growing income stream as they go forward in their career.

These lenders are generally comfortable lending qualified dentists 5.5 or even six times their earnings. That level of mortgage isn’t generally available to those who aren’t fully qualified.

So while you don’t need to be fully qualified to apply, it can increase your borrowing with certain lenders, particularly if you became part of the General Dentist Council within the last five or 10 years.

What documentation will I need to provide to the lender when applying for a mortgage as a dentist?

We just need confirmation of your earnings. That means pay slips if you’re employed, accounts or financial statements if you’re self-employed.

On top of that, we’ll need to be able to you under Money Laundering Act rules, and see proof of your available deposit as well – whether that is a gift or savings.

So can a dentist use a mortgage for buying a practice or a dental surgery?

There are various commercial lenders who are experienced in dealing with dental practice finance. With commercial lenders, the loan is secured on the dental premises. There can be generous terms available, because lenders like the dental and medical sectors. For the actual buying and setting up of the practice, there are certainly commercial lenders available.

Some lenders will also offer residential mortgage rates on a dentist’s main residence to help them buy a practice or a dental surgery. The issue here is that you need enough personal income for that borrowing. More importantly, you have to be prepared for the mortgage to go onto your main residence rather than be secured on the surgery premises.

Some dentists prefer it to be a purely commercial transaction, with the debt secured on the practice. They accept that interest rates on a commercial loan are generally more expensive than a residential mortgage rate. It all depends on personal circumstances and preferences.

There are other issues to be considered here, such as whether your partner would be happy for the loan to be secured on your home, and there may also potentially be tax implications. Talk to a broker to establish the options that are available.

Are there any limitations on using a mortgage as a dentist for other purposes, such as home renovations or debt consolidation?

You need to be a bit careful if there are structural works involved in the renovations. If there’s a big extension being built, has it got the necessary planning permission, regulatory approval and building control? But generally home improvements are fine with mortgage lenders.

If it’s for debt consolidation, that’s also available. Some lenders limit the amount of debt that can be consolidated, and £25,000 or £30,000 are not uncommon limits.

But if a dentist is coming to us to pay a historic tax bill, the vast majority of lenders don’t like lending for tax payments. It does depend on the circumstances and what the additional money is being used for.

Is a higher deposit required for a mortgage as a dentist?

No. Lenders are keen to lend to dentists, so it’s pretty standard. One lender at the moment is happy with a £5,000 deposit, but with most lenders the minimum is 5% of the purchase price [podcast recorded in June 2024]. You also need to cover stamp duty and other costs on top.

Lenders price mortgages according to their perceived risk. The more money that’s put in as a deposit, the more comfortable lenders feel and so they offer better rates of interest.

Generally, every full 5% of the purchase price that you’re putting in as a deposit will help lower the interest rate.

How do I determine the loan amount I can qualify for as a dentist?

It purely comes down to affordability – and deposit, to an extent. For a self-employed dentist, most lenders will offer you 4.5 times your earnings. Other lenders may go to 5.5 or even six times earnings if you meet the appropriate criteria.

How much you can borrow varies massively, particularly if you’re self-employed. There are vast differences in how lenders assess income from the same set of financial figures.

To determine the loan amount, realistically you need to talk to somebody who specialises in either self-employed or dental clients. We will know how much you can borrow once we do an income assessment to explore what you afford to pay back on the mortgage each month.

What interest rates and fees can I expect for a mortgage as a dentist?

Every now and then lenders will launch rates that are slightly better for professional clients, especially those that have recently qualified. If you’ve qualified as a dentist and registered with the GDC in the past five or 10 years, there are sometimes slightly better rates available.

But being a dentist also won’t preclude you from getting access to all the other rates and terms in the market. It might actually open a few other doors that wouldn’t generally be available to other clients.

Are there any specific lenders that specialise in offering mortgages to dentists?

Yes. At the moment, in June 2024, lenders such as the Co-op, Metro Bank, Clydesdale Bank, Virgin Money, and NatWest have a whole range of products available to newly qualified professionals.

Can I get a mortgage as a dentist if I have existing student loan debt?

This is a common question – not specifically for dentists, but from clients generally. The monthly payment or annual commitment to your student loan is included in the lender’s affordability assessment.

The overall level of the student debt is less important. If you built up £50,000, £60,000 or £70,000 worth of student debt at medical school, lenders are less concerned about that. They view it as almost a deferred taxation scheme. It’s just about the monthly cost and how that affects your affordability for mortgage payments.

What other tips do you have on mortgages for dentists?

If you are self-employed or have your own limited company where you’re a significant shareholder, take advice by talking to a broker with access to the whole of the mortgage market.

Ideally, find one that specialises in the professional market in particular, like Davidson Deem. We know which lenders can do slightly more if required.

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

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Mortgage for Dentists

Mortgage for Dentists (Part 2)

We continue the conversation on mortgages for dentists with Brian Keane. Episode two of two, recorded in June 2024.

What should I consider as a dentist when comparing mortgage offers from different lenders?

The key thing is, what sort of rates and terms are being offered to you? Are they competitive? Will they meet your plans going forward?

For example, do you have any plans to extend your property or move house in the next two, three, four or five years? Are you considering making any significant overpayments to the mortgage?

When looking at a mortgage offer, we need to be sure that it meets your plans and requirements going forward.

How long does the approval process typically take for a mortgage as a dentist?

There are no big differences for a dentist in particular. Sometimes there’ll be extra checks where you might need to provide a copy of your registration certificate with the General Dental Council. But checking on the register is not a long process.

What you tend to find is that the lenders with the very best rates in the market at any particular time get busy, and then their service levels drop. It can mean they take a bit longer to produce the mortgage offer.

Normally a mortgage offer will take a couple of weeks to come through, but sometimes it can be significantly quicker or slower.

Are there any specific tax benefits or incentives for dentists who are looking for a mortgage?

I can’t think of any incentives, other than the fact that lenders are prepared to be a little bit more generous for newly qualified dentists in how much they lend.

There is no specific tax position for a dentist that would not be available to any other client who’s either employed or self-employed. If your accountant has come up with a particular tax angle, though, we’re always happy to work with them to see how we can fit with their advice.

Can I get a Buy to Let mortgage as a dentist?

Yes, and there are no real differences for dentists. The amount you can borrow on a Buy to Let mortgage is really primarily driven by the property value and the rental income it will generate.

Lenders can increase the amount they might lend on a Buy to Let if the client has significant personal income outside of the rental income from the property. It’s called top slicing. But that’s not specific to being a dentist.

Can I still get a mortgage as a dentist if I have bad credit?

Yes, which is good news. It’s in line with the rest of the market. It will depend on how bad the issue is and what your circumstances are at the moment. Affordability is still the key factor.

The main thing is to be open and honest with your mortgage broker. Disclose fully what’s happened and why, and in turn we will be open and honest with the lender so that everybody knows where they stand upfront.

Lenders will always find out about any poor credit history, so it’s always best to flag it up with them at the outset.

Can I switch to a different mortgage product or lender once I have a mortgage as a dentist?

Absolutely, providing it makes financial sense to do so. The key thing is that you’re not hampered or restricted in any way by the lender that you’re with.

So if you were on a historically low five-year fixed rate at around 1%, for example, and for whatever reason you wanted to repay part of that mortgage, we’d have a good discussion with you about why you would want to do that when you’re on such a low rate. You currently get 5% on an instant access savings account.

So we need to have a chat with any client to make sure that moving lenders makes sense. But as a dentist, you’re not precluded from any lenders or products. You’re very much a client that banks want to lend money to.

What happens if I sell my property before the mortgage is fully paid off?

When you sell a property, the mortgage has to be fully paid off. You will only receive the net equity from the sale. If you sell a property for £1 million pounds with a £500,000 mortgage outstanding, you’ll receive the £500,000 difference once that mortgage has been redeemed.

Now, if you pay the mortgage off and you’re, say, two years into a five year fixed rate at a wonderfully low interest rate of 1%, it makes complete sense to try to resurrect that rate with your lender on the new property. It’s possible, as long as we’ve gone back to them within the timescales they set out initially.

With some lenders, you’ve got to do it straight away. If you’re looking to move and you do still need a mortgage going forward, you have to swap the mortgage onto the next property immediately. With others, you can sell your property, redeem the mortgage, and go back to them within three months or even six months. They’ll set the old rate up and give any penalties back to you.

But the circumstances, rates and terms that lenders offer varies massively. So before actually taking a decision, please check the terms of the original mortgage offer. Or indeed, talk to a broker and get them to look at the various options for you.

Can I port my mortgage as a dentist to a new property if I decide to move?

Yes, you can. The interest rates on residential mortgages are portable. The mortgage itself isn’t. The lender has to be happy with your circumstances, your credit history, your payment record, your current earnings level, and any commitments that you have.

They need to agree to still lend you the new mortgage amount you’re looking for. It’s not as simple as swapping your entire current mortgage across. They need to be comfortable with the new property as security.

If it’s a wooden hut on a beachfront, they’re not going to say yes on that – they prefer properties to be brick or stone built. So a mortgage is portable, but the lender will assess your income, circumstances and the property itself.

Can I make extra repayments or pay off my mortgage early without incurring penalties?

Again, check the terms of the original mortgage offer. Most lenders in the UK are happy with 10% per annum as an overpayment amount. That can either be a single lump sum or multiple smaller payments.

Some lenders, and currently NatWest is a good example, allow you to overpay 20% of the outstanding mortgage amount each year. Metro Bank will also allow you to pay 20% off at the moment. [podcast recorded in June 2024]

On many variable rate products, rather than fixed rates, there’s no limit on the amount you can overpay on the mortgage. Some products will allow you to pay all of the mortgage off, while others allow you to pay up to 99% – but there’s not many of those around nowadays.

If you’re not sure what your restrictions are, talk to a broker and they’ll have a look at the offer and confirm exactly what you’re able to do on that particular product – or talk to the lender direct if you prefer.

Are there any special considerations or requirements for self-employed dentists looking to obtain a mortgage?

No, nothing specific. It’s a sector that lenders like lending money to – because there’s a proven track record of a low default rate on mortgages for dentists.

But the standard criteria generally applies with most lenders. So if you’re a self-employed dentist, lenders would like to see the last two or three years’ financial accounts. That’s the case if you’re a sole trader, in a partnership, or a significant shareholder in a limited company dental business. A significant shareholder generally means 20% or more of the voting share capital.

With that size of shareholding you’re generally treated as self-employed, even though you’re technically employed by your own company.

For a new dentist or new associate dentist who only has one year of figures, some lenders will work just from that. Your broker will know which lenders will be able to consider an application from somebody with just one set of financial figures. That’s not specific for dentists, but generally being a dentist will help with the overall assessment and underwriting of the case.

What are the pros and cons associated with getting a mortgage as a dentist?

The good news is I can’t think of any cons at all. The main pro is really that this is a sector that lenders are keen to lend money into. They are therefore more relaxed and a little more flexible in their criteria – and sometimes more generous in how much they’ll consider lending to a dentist compared to somebody not in a professional role.

What else do we need to know about mortgages for dentists?

Obviously, please use Davidson Dean because we do specialise in doctors, dentists and other professional mortgages. And we’ve done so for 35 years now.

We know the market and which lenders have better criteria for professional industries, and also which lenders have special rates and terms available. We can recommend products that are suitable for your individual requirements.

As a dentist or indeed any other client, talk to a broker. Obviously, I’d like it to be Davidson Deem, but if not, make sure you find one that can help you through the mortgage maze, as I like to think of it.

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

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.