How to Get a Mortgage as a Doctor Working as a Sole Trader or Limited Company
This article was written with contributions from expert mortgage advisors. For contact details of the experts and definitions of key terms, see the bottom of this article.
If you are reading this article then you are probably looking to understand an extremely complex topic: Mortgages (already very complicated) for locum doctors (definitely adds a layer of difficulty) who are working as sole traders or through limited companies (the cherry on top of a giant pile of confusing).
To get to the bottom of all of this we have spoken to two mortgage advisors (one of whom specialises in locum doctor clients) to answer all of your mortgage-related questions in a straightforward and uncomplicated way.
In this article you will learn:
✅ What lenders are looking for when deciding whether to make you a mortgage offer
✅ What are the common difficulties that doctors working as sole traders or through limited companies face when applying for mortgages.
✅ How doctors working as sole traders or through limited companies can put themselves in a strong position to get a good mortgage offer.
✅ Top tips from the experts in getting your mortgage as a self-employed doctor.
Note: This article is specifically aimed at self-employed doctors who work as sole traders or through limited companies. If you want to learn more about this type of doctor, read this comprehensive article here.
If you work as a locum but don’t file your own taxes then check out this article about how to obtain a mortgage as a locum doctor.
If you want to know how doctors on fixed-term contracts such as clinical fellows or trust grade doctors can get a mortgage, then head over to this article here.
What are the main factors that determine whether a locum doctor can get a mortgage?
There are three things that mortgage lenders care about:
👉 Income: Do you earn enough to pay back the mortgage and the interest? An affordability calculation is done to check that you can make the payments.
👉 Employment History: The length of time that you have been working matters, and whether that employment has been steady without fluctuations in earnings.
👉 Debts: Are there any major debts or commitments that would make this mortgage unaffordable?
What issues do doctors who work as sole traders or through limited companies usually encounter?
Though locum work can vary month to month, the benefit of being a sole trader is that you don’t have monthly payslips but annual tax filings so the monthly inconsistencies don’t show as much. The downside of this is that it takes longer to accrue to the number of annual tax filings that you may be asked to show, compared to a locum doctor who does not file their own tax returns.
How much can I typically borrow?
The amount that you can borrow will vary from lender to lender, and depends on lots of factors but as a general guideline the amount may be somewhere around 4x your annual salary but in some cases can be up to 6x. Some lenders have calculators on their websites to give you a rough idea of how much they may offer, but this is more of a guideline than a promise!
What is the difference between sole traders and limited companies?
The main difference is how your income is delivered to you over the year.
If you are a sole trader then your total income will be the same as your SA302 (tax calculation) but if you are a limited company then you receive a basic salary from the company and dividends (variable payouts) and your company may hold assets that you do not (so they wouldn’t appear on your individual tax calculation). This can give you flexibility in how much income you declare each year. If you increase the dividends then your income is higher and potentially this may allow you to borrow more money for your mortgage.
What is an SA302 and do I need one?
If you receive a payslip through your hospital or agency then you do not need to worry about this. If you file your own taxes, then this will relate to you.
An SA302 is a Tax Calculation for HMRC that is filed annually. As a sole trader or limited company, you or your accountant will file a tax return and tax calculation (SA302) annually. Mortgage lenders look at these in lieu of payslips and will usually ask for at least 2 years of filings to secure a mortgage.
Does that mean that locums who set themselves up as sole traders or limited companies can’t get a mortgage unless they have locumed for 2 years consistently?
Strictly speaking, yes, but in reality it is not the case if you speak to a specialist mortgage advisor. A big, high street lender would want proof of income either as monthly payslips (going back 3-12 months) or two annual SA302s, but a specialist lender can be more open minded about how to determine your monthly income as a sole trader or limited company.
Consider this scenario of three different doctors:
Dr A traveled for 6 months in F3 and then came back to locum and earned £50,000 in 6 months.
Dr B started locuming part-time right away and earned £50,000 over 12 months by working consistently.
Dr C locumed for 6 months and earned £50,000, and then spent 6 months traveling.
Which doctor would be most likely to get a mortgage?
If all of the doctors were registered as sole traders or working through a limited company then they would be required to file annual tax returns. Annually, their incomes would appear to be the same on the SA302 and all would be in an equally good position to get a mortgage. This is only the case if they have been doing this for at least one tax year, though many lenders would want two tax years.
This becomes extra complicated when you consider that a personal tax year runs from April-April whereas the medical calendar runs from August-August. Your first year accounts might only run from august-april and may not count as a full tax year. If you are in this position, it is best to speak to both your accountant and a specialist mortgage advisor.
If the doctors were not filing their own tax returns and accounts each year, and were getting payslips through their hospital or agency then Dr A would be in the best position to get a mortgage as their annualised income based on their monthly payslips would be £100,000. Dr B would also be in a good position to get a mortgage as they could demonstrate a steady income over a long time. Dr C would not be able to get a mortgage as their income over the preceding 3-6 months would be £0.
What is the biggest mistake that sole traders and doctors working through limited companies make before applying for a mortgage?
Accounts that have not been filed properly are a big problem for doctors working this way as the accounts are only done annually and so it takes longer to get all of the paperwork in order for your mortgage. Though it is not necessary, it is advisable to hire an accountant to assist with taxes and accounts to ensure that it is all done correctly.
Is it necessary to hire an accountant if you are locuming as a sole trader or limited company?
It isn’t necessary, but if you file your own tax returns then there are certainly benefits. Not only does it ensure that everything is done on time and correctly, it can help you optimise your finances and it takes the stress out of a very challenging task.
Accountants look at a whole other aspect of financial planning to mortgage advisors. They look at what is best from a tax position, whereas mortgage advisors look at the most you can get from an income position. In terms of getting a mortgage, as long as all of your documents have been filed properly then it doesn’t really matter whether you have an accountant or not.
Can I get a Mortgage in Principle / Agreement (MIP/MIA) as a sole trader or limited company?
Mortgages in Principle or Mortgages in Agreement (MIPs or MIAs) prove the seriousness and readiness of a buyer to estate agents.
Sole traders and limited company doctors can get MIPs/MIAs but it can be tricky when your income changes monthly. Working with a mortgage advisor to get all of your paperwork prepared in advance of putting in an offer can increase your changes of a successful bid.
How much deposit do I need?
In most cases, a deposit of 10% of the property price will be sufficient, although some mortgages are available with just a 5% deposit.
The advantage of a bigger deposit is that the loan from the bank is a lower proportion of the value of the house (known as the loan to value ratio). This generally means better interest rates, making the mortgage cheaper over the long term.
Do locum doctors have to accept worse mortgage rates than contracted doctors?
While it is true that locum doctors do often have a restricted panel of mortgage lenders to choose from, it is not true that this results in worse mortgage rates.
Conventional, big highstreet lenders are often rigid in their lending criteria and have so much red tape that it is very hard to meet their strict specifications. Specialist lenders, who also offer very good mortgages, can be very flexible and open minded in their assessments of an individual and are willing to look past the non-conventionality of doctors work patterns and contracts.
Sometimes, specialist lenders have better rates than high-street lenders so even if you have the option of either, you may still choose to go with the specialist lender. It just depends on what is available at the time. Just because you have fewer options doesn’t mean you have worse options.
Do I need to worry about my expenses?
As part of your affordability assessment, lenders look at your outgoings and financial obligations. This includes any debt, student loans and regular payments like school fees and car finance. It is worth reviewing your monthly outgoings to ensure that you are being frugal with your expenses and consider not taking on new debts or big expenses in the 3-6 months prior to applying for a loan.
How can I improve my credit score?
Doctors’ busy working patterns can make staying on top of finances more difficult, particularly if you need to phone services to challenge or pay bills. Generally, doctors with lower credit scores are to do with marriage breakdown or very unique personal circumstances but doing a soft credit check to optimise your credit score can be helpful.
Using a credit scoring platform such as ClearScore will give you an insight into your credit report and tell you where your credit weaknesses lie.
Simple things that you can to do improve your credit score are:
🙌 Obtain a credit card that you use and then pay off in full each month.
🙌 Register your details on the electoral roll.
🙌 Pay any outstanding debts or charges in full and on time.
🙌 Ensure that lenders providing a mortgage in principal are only doing soft credit checks as lots of hard credit checks done around the same time can damage your score.
What about if you are buying the house with a partner who is not a doctor?
If your partner is a very high earner on a permanent contract, you may be able to use their income alone to obtain the mortgage to purchase the property. If you can do this, then you would be able to use any mainstream lender without the restrictions of needing a specialist lender. However, if you need to factor your income to the mortgage calculation, then the rules of needing a specialist lender still applies (for both of you).
What if you are a foreign national doctor on a visa?
There may be red-tape around what type of visa you are on and how long is left on it, how many years of employment or address history you need to provide, and whether or not you can use a gifted deposit. Again, each mortgage lender has their own stipulations in what documentation that they want to see, so speaking to a mortgage advisor for bespoke advice would help.
What are your top tips for doctors working as sole traders or limited companies?
🔹 Consider hiring an accountant to ensure that your annual filings are delivered correctly and on time.
🔹 Consider paying yourself dividends to maximise your income in the months leading up to your mortgage application.
🔹 Save at least a 10% deposit but remember that a larger deposit can get you better interest rates.
🔹 Optimise your credit score to put you in a strong position with lenders.
🔹 Timing matters when you are a locum doctor. Get in touch with a mortgage advisor as soon as you decide you want to buy a home.
🔹 Income protection and life insurance are vital as you won’t have any sick pay benefits from employment as a locum doctor. Make sure that once you have the mortgage, you have means to continue to pay it each month, even if you have to unexpectedly stop working.
Finally, why should locum doctors hire a specialist mortgage advisor?
Often, working with a mortgage advisor will save you time and stress, and provide you invaluable help in securing a mortgage. While some mortgage advisors do charge a fee for their services, some do not. Instead their business is based on their reputation for getting clients the absolute best mortgages that they can get, without costing their clients anything. They get paid by the mortgage lender when a mortgage goes through (it’s called a nomination fee and is pretty much the same whatever lender you go with so they are not incentivised by commission or sending you to a lender that will pay them more).
If you want to know more about mortgages for clinical fellows and trust grade doctors then check out this article.
If you want to know more about mortgages for locum doctors then check out this article.
Barry Jeans is a mortgage advisor at Medical & Professional Investment and has worked in the industry for 30 years. For nearly a decade he has specialised almost exclusively in mortgages for doctors, and non-training locum doctors makes up a large proportion of his client base. www.doctorsmortgagesonline.co.uk, www.mpionline.org.uk, barry@mpinvestment.co.uk
Solomon Tourgeman is a mortgage advisor at Kudos Mortgages. He has been worked in the industry for 5 years, with clients all over the UK from a variety of career backgrounds. www.kudosmortgages.com, solomon@kudosmortgages.com
Nothing in this article constitutes professional and/or financial advice, nor does any information constitute a comprehensive overview of the issues relating to mortgages for doctors. Please do your own research.
Definition of Terms
Fixed-Term Contractor - A doctor who is employed with a contract that has a defined end date. This could be a training doctor, a clinical fellow, trust grade doctor, or a doctor working in a private company.
Locum - A doctor who works irregular shifts to cover rota gaps. This can be done through a bank or an agency, as a sole trader, or through a limited company.
Mainstream Lender / High Street Lender - A more well known mortgage lender, such as the names of the banks you might recognise on the high-street.
Mortgage - A mortgage is the name given to a loan specifically for the purpose of buying a property. They are regulated and secured to the property you buy. This means that if you don't repay the loan, the mortgage lender can repossess the house to sell it and recover the money owed to them.
Mortgage Advisor / Broker - A professional person who assists a client in finding and applying for a mortgage, and liases between the mortgage lender and the mortgage applicant.
Mortgage Lender - The bank or building society that is providing the mortgage loan.
SA302 - A Tax Calculation for HMRC that is filed annually if you are working as a sole trader or limited company. It is an overview of your personal tax return, not your company tax return.
Specialist lender - A mortgage lender that caters to applicants with a specialist type of income. This may still be a mainstream lender but the term is used to describe how flexible they can be in who can apply to them for a mortgage.
Your Ultimate Guide to Succeeding as a Locum Doctor
This article is part of a wider series of resources and guides that are designed to support you as a locum doctor, covering areas such as getting your first job, managing your finances, understanding your rights, and many more. Visit our Locum Doctor Hub for everything you need to know about locuming today.
Additionally, if you're considering an F3 year, you might also find it useful to look through the selection of resources we've put together in our F3 Resource Hub.
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