Dentists Who Invest Podcast
Official Podcast of the Dentists Who Invest platform. Talking all things investing, money and finance with a dental spin. Have you ever wondered how you can grow your wealth and protect your hard earned money as a Dentist? We've got you covered. Featuring famous guests such as Andrew Craig, Edward Zuckerberg and Benyamin Ahmed we delve deep into EVERY aspect of finance to educate and empower ALL Dentists.
Dentists Who Invest Podcast
Do I Have Enough To Get The Right Mortgage? with Sarah Grace DWI-EP304
Do your mortgages repayments feel high?
Connect with Sarah here: https://www.dentistswhoinvest.com/sarah-grace-mortgages/
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You can download your FREE report on how you can avoid financial mistakes as a dentist using the link just here >>> dentistswhoinvest.com/podcastreport
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Wondering if you’ve got enough dosh to nab that dream mortgage? In this episode of the Dentists Who Invest Podcast, mortgage guru Sarah Grace breaks down the mortgage approval process like a pro. She shares top-notch advice on how lenders check your financials, helping you understand the difference between profits and turnover—crucial for anyone navigating the mortgage approval process.
Sarah digs into how tax-deductible expenses and pensions can impact your borrowing power. Whether you’re a sole trader or running a limited company, she’s got the lowdown on making the mortgage approval process work in your favour. Tune in for practical tips to help you secure the mortgage you’ve been eyeing.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.
Welcome back to Dentists Who Invest podcast. This is a question I'm sure my guest who's joining me today, Sarah Grace, gets all the time. Bottom line do I have enough to get a mortgage and how the hell does that look? So we wanted to make a specific piece of content today that dealt with that, for the benefit of the audience. Sarah, how are you?
Sarah:Hi, James. Yeah, really good, really good. Thank you, looking forward to holiday next week oh lovely, where are you off to?
Dr James:I'm going sailing in turkey oh, and we are obviously on the 5th of september 2024 yes right now. So this is going to be slightly outside of peak season, which is a good thing, right.
Sarah:Yes, yes, yeah, and not too hot, not too hot and also a little quieter yeah yeah.
Dr James:Some serene sailing. Okay, good stuff. Well, I didn't have you down as a sailor, Sarah.
Sarah:Did you not? Did you not notice my stripy top?
Dr James:I didn't, but then again, the zoom camera can just see your face, so it's probably hiding down there somewhere. Anyway, we digress. We're not supposed to be talking about sailing there, so let's be talking about how does one know enough if to to to to get a mortgage effectively? And you were just you. There's a few things we want to touch base on today. To answer that question, one of the things you were telling me about just off camera, just before we started this podcast, we hit the record button today, was the distinction between how the companies look at your profits versus your turnover, regardless of whether you're a sole trader or incorporated because there was a little caveat in there that I didn't know which kind of makes sense, but, Sarah, you're going to do a better job explaining it than me yeah.
Sarah:So it doesn't matter whether you're a limited company, sole trader, um, lenders will work off your net profit. So this is your turnover less all of your business expenses, uh. So I had a really good example today a dentist. She on her last tax return she was a sole trader. She had course costs and obviously, because she'd been attending those courses, she'd had some time off work, so her turnover was slightly lower. But then 20 grand's worth of course costs meant that her profit, her net profit, was 57 000. Yeah, I'd got her last three pay schedules and the pro rata income was 114 000.
Sarah:Now, the amount you wanted to borrow, um, it didn't fit on the 57k, uh net profit. So what we had to do was go with a lender that just works off the last three pay schedules. Now, now, that's great. If you're an associate, it doesn't matter whether you're a sole trader, limited company, we can work off pay schedules. But if you're a principal, that's more of an issue because, yeah, you're not going to give yourself pay schedules, are you? So principals, we can't use that sort of criteria for them. So you know, I have worked with some accountants where you know they say well, some of the course is being done in a different trading year. So we can put some of the course costs through right that trading year and then the rest in the next. So you know it's all. It's all legal, it's all hmrc acceptable. But it just means that sometimes putting all of your course costs or any other costs through in one trading year can can really hit your profit well, dentists love a good tax deductible yes, they do.
Sarah:The amount of dentists that say, oh, I've put 60k into my pension, but you can add that back in, can't you? And yes, you know you, you, there are some lenders that will do that, but you're not going to be looking at high street names. So, yeah, you know we, we can, we can do that, but you're gonna have to pay a premium on the rate. So we, especially with pensions, you can always carry back to previous years. So maybe it's better to, uh, not do your pension contributions just before you're in the last trading year, before you want to get a mortgage, and then, once you've got the mortgage, carry it back to the previous year.
Dr James:Sure, and just worth mentioning. That's under the presumption you already have the account open, right as in we'd have to have the pension account open. I think you have to contribute to it, possibly even like a little.
Sarah:Yeah, you have to. Yes, all right, yes, you have to have an account open.
Dr James:Yeah, well, of course, but, as I say, food for thought, isn't it 100%? And certainly places to look. But, yeah, okay, cool. Well, listen that, because, as you, as we were saying as well, just off camera, it's like, regardless of whether you're sole trader or you're a limited company, they're very much looking at you like a company, so to speak, insofar as that's the turnover and that's the profit. That's the distinction between those two things. So you can use this information to be a little bit, a little bit tactical about when you go ahead and yeah.
Dr James:Yeah, all sorts of things. Okay, cool, so all right, good to know. And then, in addition to what we were just saying a second ago, so obviously this podcast is all about how we know if we've got enough money to be able to ensure that we can get a mortgage, and not just any old mortgage, but dream home, so to speak, potentially or certainly a lovely primary residence, which is what we're generally referring to here. There's a few other big things that I want to touch upon, but anything else that you want to add to what we were just saying, or is that pretty neatly round that off?
Sarah:well, there's a lot of lenders, especially over this last week, that are sort of hitting the headlines saying for first time buyer, they're increasing affordability. So so you know and a lot of dentists will meet that criteria where the application income needs to be over 100 000 or 75 000, where they can go up to five and a half times the joint income.
Dr James:Okay, cool, well, that's good to know as well. Okay, cool, moving on, moving on anything. I know that there was another thing that you and I were talking about just off camera, and that's with regards to the year ends trading year ends, right yeah what was that right?
Sarah:so a lot of people as well, especially if you're sole trader.
Sarah:That's tax year end, so that's a the 5th of april.
Sarah:So we're now getting to a point where, if we are going to be using your tax returns, um majority of of lenders and there's only a very few that won't work off accounts or tax returns that are over 18 months old.
Sarah:So, if you've got limited company and your trading year is 31st of March which I would say you know we do get some limited companies that aren't 31st of March, but I would say majority of people will have 31st of March as their end year we're now getting to the point at the end of this month where their accounts are going to be 18 months. Their 2023, march 23 accounts are going to be 18 months old. So come October, they will be wanting to see the 24 accounts. So if you haven't got your accounts done and you're going to be looking to do a mortgage from October onwards, you need to start getting in touch with your accountant if you haven't already and uh and doing those accounts because a lot of the time what they well, some accountants out there, even though you send them what they need, well, they won't do it until a lot closer to the time.
Dr James:So it's just about, it's just worth considering that, so that you can have one reduction in a row, so to speak, and get that, because you've seen a little bit of an uptick in interest in mortgages of late, haven't you, Sarah? You were telling me.
Sarah:Yes, I think that we've had the bumper august and and it's like you know, with any sort of investment, stock markets, and that they they tend to have a bit of a stagnant time when there's uncertainty. So you know, we've had a, we've had an election, um, and then it's people waiting to see what labor do, um, what happens to interest, what will happen to interest rates. You know, that's classic example. Um, we've had, we've had the Labour government come in. They've not done anything drastic yet. Hopefully they won't. And then we've had the Bank of England base rate cut at the beginning of August. So I think that's sort of now there seems to be more stability again in the market and I think people just get on and buy their homes. So so yeah, we've we've had a very busy August, which traditionally August can be a little bit slow because people are on holidays.
Dr James:I see. So that would be the logic in it, or certainly that's what you've observed. Yeah, and you know what I'd be interested to know do people, you know, when people pick up the phone? Is that something that they say to you? They're like oh, things seem a little bit more stable now, let's go for it, or is it more like a subconscious thing?
Sarah:No, it's not an interest when you get the announcement of the Bank of England base rate reduction, our phones just go crazy Because people say, oh, Bank of England just reduced their rates today. Does that mean my fixed rate's going to?
Dr James:come down.
Sarah:That would be nice yeah, yeah, so, so, um, so, yeah, you know, uh, I think I think it does when things are getting cheaper and that you know it gives people confidence, doesn't it?
Dr James:Fair enough. So that's what you're observing of late.
Sarah:Yes, yeah.
Dr James:Gotcha, and I know that this is your least favourite question of all time, but where do you think interest rates are going to go from here?
Sarah:Crystal ball, isn't that? Um, I, I think that hopefully, as long as uh, you know, inflation stays low, um, obviously there's the, there's the labor are going to do their sort of budget. Um, you know what will happen then? I don't know, economy wise, um, as long as, as long as the economy is growing, even if it is less than 1%, and inflation stays low, we will see Bank of England's base rate continue to fall. I don't think it's going to fall really quickly. I think they're going to be very cautious about when they start dropping rates. Well, they have already started.
Sarah:But, yeah, I think we could see another bank based rate reduction this year. And then, oh, shall I put my head on the block. This is my personal opinion and after reading economist reports, and that it doesn't mean to say that this is going to happen, but I think that a couple of years it will be, we'll see a bank base rate at, say, around three and a half percent. So, let's see, let's see. I'm just hoping that is the case. This mild fixed rate ends in december 22, 26, so, uh, I work out quite nicely that is the case fingers crossed.
Dr James:Fingers crossed good stuff, Sarah. Obviously that has been a really nice summary of some things that it is helpful to know whenever it comes to people asking that question how do I know if I've got enough to get the right mortgage, to get a mortgage?
Sarah:anything else you feel it's worth adding on at this point, or we very neatly encapsulated today yeah, like, obviously we could have a lot of um, a lot of uh dentists been starting their um, starting as associate. You know, september is when they're coming off their fd and they go into an associate role. So, can you know, a lot of associates seem to think that, or new associates seem to think that they need to have two years accounts. Accounts, uh, we can work off of uh three months pay schedules. So come december, uh, we can start getting them a mortgage. We can, we can work off a principal's reference before that.
Sarah:But in my opinion, if they can wait three months, uh, the rates are going to be much better than working off the principal's reference. You know, the rates are much, much higher and it's not, in my opinion, not really worth it if you've got the deal of a century on a property and you haven't, you haven't got three months pay schedules because you went associate in September. Uh, well, well then, you know, speak to us, but um, but the rates will be probably in the region about one percent more good to know.
Dr James:Well, I certainly didn't know that. Oh well, I mean, I mean, it stood to reason with what you were saying with regards to the three months thing, but I didn't know that they could also operate off a promise, uh, from the or before they start their position.
Sarah:We can, we can still get them a mortgage on a principal's reference if the principal's prepared to confirm what what their earnings are going to be. Uh, or, or you've got an NHS contract. Uh, we can, we can work off the contract, but yeah, the rates are going to be quite a bit higher good to know.
Dr James:Well, listen, Sarah, thank you so much for giving us a little bit of a summary in terms of responses and need to know things whenever it comes to dentists, who are commonly asking themselves that question, which is a pretty common. Sarah, if anybody wanted to reach out to you off the back of this podcast today, how would they be best off doing?
Sarah:that Website, Sarah, or our phone number. The office number is 0203 633 888.
Dr James:Lovely, lovely, Sarah. Thank you so much once more for your time today and I'm looking forward to our next episode already.
Sarah:Yeah, that's lovely. Thanks, James.
Dr James:Beautiful stuff. See you soon.
Sarah:Thank you.
