Applying for a mortgage is reasonably straightforward for most NHS doctors and dentists. But what if you are a locum? It’s great to be self-employed and to have flexible working patterns, but if these benefits stop you having a mortgage it can cause a real headache.
In the eyes of a mortgage underwriter, all locum roles are not viewed the same. They will assess each locum in different ways. For example, a mortgage underwriter will assess a salaried locum differently to a self-employed portfolio locum, working in short term roles at various practices.
Fear not. A locum can get a mortgage too!
We’ve put together 8 top tips for getting a mortgage, even if you have only been a locum for 6 months! There are plenty of decent rates out there, particularly fixed rates. However, it is worth seeking specialist advice before you start the application process.
In your first year as a locum, your income will be employed for part of the year while you complete your training, and you will become self-employed once you are a qualified locum. Instantly you think you’ll never get a mortgage! However, it’s not necessarily impossible for a new locum just starting out to get a mortgage.
Get an accountant, not just any old accountant. Choose someone who deals with other medics and specifically locums. You can find a specialist medical accountant verified by Medics’ Money with reviews and recommendations from doctors here. The reason this is so vital is that there are a few mortgage companies who will consider lending if a suitable accountant can project forward, and give an estimate of your whole year’s earnings. They will not take your own projections into account.
Specialist medical accountants can work wonders wrestling a locum’s sometimes complicated earnings into a standard tax return while claiming back fees, and allowable expenditure along the way.
Add to this their ability to help with mortgages and they rapidly become a vital part of your financial team. But do bear in mind very few mortgage companies will consider lending to you even with an accountant’s projection, so speak to your specialist financial adviser to make sure you don’t waste your time applying to unreceptive lenders.
Once you have 2 – 3 years of self-employment under your belt things get much more straightforward. But not as easy as when you were in hospital service, and you just had to present 3 months pay slips of course!
Because of your fluctuations in income, mortgage companies want to see a longer snapshot of your earnings to decide if you can afford the mortgage.
To maximize the number of lenders that will consider lending to you in the future, try and keep records as you go along. Ideally, you need:
Note: Your accountant may be focused on minimising your tax liability. This could be at odds with what a mortgage company will want to see. Many providers use algorithms to assess your affordability, and often their starting point is your income. You will need to ensure that your taxable income is sufficient to support your application.
If you are expecting to purchase in the future, make sure your accountant is made aware of your plans.
Make sure you take everything into account when looking to buy a property, and budget for the following:
Once you have estimated these costs you will know the true deposit you have left to put down, and therefore the mortgage you can reasonably expect. If in doubt, ask your financial adviser to help with working out your maximum borrowing figure.
Do you have a good credit rating? Granted it’s not the most exciting way to spend 10 minutes, but it’s not hard and if you have a problem you can try and sort it out in advance rather than falling for your dream home or needing to move to get children into a certain school and finding you can’t.
There are several credit check agencies out there. Try: www.experian.co.uk
If you request a statutory credit report its either free or costs only a few pounds and you don’t need to sign up to any other services.
If you haven’t got a terribly good credit rating, or maybe haven’t used credit at all and therefore have a non-existent rating, there are things you can do to improve your score such as:
How much you can borrow is based on your earnings, but almost more importantly what you spend! This is so the lender can see how much will be left over to repay the mortgage. So, take a look at your bank statement and be ruthless with those seldom-used gym memberships! Consider switching to paying for things annually instead of every month and check all your direct debits for possible cost savings, such as with your utilities.
With a fixed rate you have total security knowing the rate won’t change while you are on a deal. That’s great if interest rates rise as your rate won’t, but if they go down you won’t benefit either.
Tracker / Variable
A tracker or variable rate will change over the deal’s lifetime. When rates reduce you can smugly think about all the money you are saving, however, if they rise you could see your mortgage repayment getting expensive.
It really is a personal thing. Discuss all the options carefully if you are taking out the mortgage with a friend or partner, and of course your mortgage adviser.
Once you have decided on a mortgage deal, most will have a penalty if you decide to leave them. You may need to remortgage to another lender or sell up and repay the mortgage before the end of the deal.
After a few years, you may want to switch lenders to get a better deal or move and need to borrow more. Not getting stuck in a deal when you will need flexibility can save money and frustration, so think ahead to when you might need to make a change due to schools, work or just because you fancy it!
Ensure your mortgage adviser is well informed before he presents your mortgage application. Check he is aware that you worked within the NHS for years before becoming a locum. They also need to know how to process varying hours and income. It is advisable to choose a mortgage company that has dealt with locums in the past (most will not have). You do not want to risk a decline in the application process.
A declined application can make your chances of getting a future mortgage approved less! It can affect your credit rating and you must declare if you have been declined for a mortgage elsewhere.
So, what now? If you are planning on buying a property within the next year I would recommend you start shaping up your finances now to make the process easier in the future.
However, if you need to find a mortgage soon take some time to find the right specialist to help you. Mortgage applications take time, they are not a quick overnight process!
Please remember that your home may be repossessed if you do not keep up repayments on your mortgage, so make sure you get it right.
Legal and Medical is authorised and regulated by the Financial Conduct Authority (FCA).
Article updated 5/5/19