Dentists Who Invest Podcast

Can I Get A Mortgage With Less Than 2 Years Of Accounts? with Sarah Grace [CPD Available]

• Dr. James Martin • Season 3 • Episode 389

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Connect with Sarah here: https://www.dentistswhoinvest.com/sarah-grace-mortgages

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Breaking free from the mortgage myths that hold dentists back. If you've been told you need two years of accounts to secure a mortgage, prepare to have your financial horizons expanded. This game-changing conversation with specialist dental mortgage advisor Sarah Grace reveals that dentists can secure mortgages much earlier in their careers than most high street banks would have them believe.

For associates, the path to property ownership can begin after just three months of pay schedules. Whether you're fresh from foundation training, transitioning between business structures, or returning from maternity leave, specialist lenders recognize your earning potential without demanding years of financial history. The best part? The interest rate premium for these specialized mortgages is minimal – often just a quarter percent more than standard rates. This means newly qualified dentists can start building property wealth years earlier than they might have thought possible.

Practice owners face different considerations but equally promising opportunities. While principals typically need at least a year's worth of accounts, many lenders will consider retained profits within the business rather than just the salary and dividends drawn. This approach recognizes the true financial strength of dental practice ownership, particularly for those structuring their finances efficiently for tax purposes. We also explore the nuances of what lenders consider "commitments" against your name and how company expenses versus personal expenses affect borrowing power – knowledge that can significantly increase your mortgage potential.

Ready to rethink what's possible with your dental income? Listen now and discover how to leverage your professional status to secure property financing on your timeline, not the bank's. And don't forget to claim your free verifiable CPD by completing the short questionnaire through the link in our description – making this episode both financially enlightening and professionally valuable.

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Dr James:

Do we need at least two years of accounts in order to get a mortgage as dentists? Well, certainly, if you go to the high street banks, that's what they would have you believe, but actually there's a little bit more to it, more than a little bit more to it. That's why I have today with me specialist dental mortgage advisor, Sarah Grace. We're going to be talking about the real truth, the real answer to this subject how us dentists can obtain a mortgage for less than two years of accounts and also the nuances of how it affects not only associates but also principals too. I'm also happy to share that there is free, verifiable CPD associated with this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentists Who Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle.

Dr James:

This episode is a little bit of a myth busting episode, because I was someone who previously, at one stage of my life believed in this only because I went to a bank and asked them when can I get a mortgage? And they told me that they had. I had to have two years of accounts before they'd even consider me and me without questioning it. I was just mortgage. And they told me that I had to have two years of accounts before they'd even consider me and me without questioning it. I was just like, okay, then they're a big, mainstream high street bank, they'll know what they're talking about. And then, many years later, I found out it wasn't even true. So I guess today is to answer this question definitively Can I get a mortgage with under two years accounts as a dentist?

Sarah:

yes, you can.

Dr James:

A simple answer, it's a big old, yes, but with a few ins and outs and nuances, no doubt so.

Sarah:

So there's, um, there's two routes one as an associate, one as a limited, as a sorry as a principal. So, associates, if we just cover those off first, doesn't matter whether you're a sole trader, limited company. You can do it with just one year's accounts. You know, obviously, two years accounts just gives you more options. But what's really good is we can just do it on three months pay schedules. So, um, you can, you can have, uh, just finish your foundation year three months pay schedules. We'll just add up the last three months payments, annualize that and that's the figure that we can work off as your income. So we've got a few lenders that will work on that basis. Where that's also useful is perhaps you've changed entity from a sole trader to a limited company and that can cause issues with some lenders.

Sarah:

Um, uh, or a lot of females out there that have come off maternity leave, uh, that messes up your tax returns where it looks like you've had, perhaps. Well, I had one client who'd had three babies over five years and it messed up five years worth of tax returns. So that's really, really good in those scenarios. So, three months pay schedules for any associate, that pretty much covers all bases if we can't use accounts or tax returns, so that's an easy one Then principles, unfortunately, because if you're using, you can't pay yourself a pay schedule, so we do have to go off accounts or tax returns.

Sarah:

So it can be like a principal typically has a history of being an associate or another principal, or so they have typically got a history of earnings. So we can look at the history and just because there is a change, typically we want to have a one year as the new principal if it's a new business, um, but some principals still have associate income. You know, I've got quite a few principals where they're perhaps set up a squad um, and they've still you having the associate income just to give them that guarantee whilst things are being uh, built up, um, so so we could use both. In those scenarios we can use accounts or tax returns and also pay schedules. So you know, we've we've got, uh, we've got a few options for everybody amazing.

Dr James:

So big fat headline is that it is a yes, it can done. We just got to know a little bit more of the ins and outs of how to pull it off If we home right in on associates for a start. So, at the very least, what you're saying is we can begin. Brokers will consider us whenever we've hit three months. We've got three months of pay slips and I was interested to know how does that impact upon the interest rate? I'm going to assume that the interest rate is going to be a little higher higher because you're seen as a bit more risky.

Sarah:

It's marginal, marginal, yeah, uh. So I I looked at this, uh, just recently and if the client was to get a market leading rate, uh, they did have a quite a good deposit, um, uh, 25 deposit, which perhaps typically your first-time buyers are on a 10 or 15 percent deposit, but they had got quite a good deposit. It would have been 4.48 on a two-year deal had had they, were they able to go to the market, and it was 4.72. So you know, quarter of a percent, wow, it's marginal. Yeah, obviously, a quarter of a percent on a million is more than a quarter of a percent on 300k. So it depends on how much you're borrowing as to how large an impact that has for you Interesting and does the interest rate?

Dr James:

is that purely a function of the deposit that you're putting down? Plus, obviously it's going to have some bearing on the market as well, and what's it what it's doing? But does your level of income on those pay slips determine the interest rate to a degree as well? So, for example, oh, it doesn't. So someone can be post fd just to really spell that out for the dentist listening someone can be post foundation dentist. You know, not really hit their stride whenever it comes to their earnings. Yeah, maybe they're bringing in those payslips, just say like five grand a month, five grand a month, five grand a month. And then versus somebody else who, for whatever reason, has had to become an associate again, and they're bringing in like 15K over three months. That doesn't make any difference.

Sarah:

No, no, the deposit, the criteria is the criteria. So it doesn't matter whether you're earning 5k a month or 15k a month, they will still work off your last three months. So you know, on your 5k a month, that's 15k. Over three months, over a year that's 60k, which usually income is 60,000. So there's no tax taken off that, there's no expenses, don't forget, this is the gross. So a lot of dentists will have expenses that they can deduct from for a tax point of view, or courses or anything like that. They're all ignored.

Dr James:

So it doesn't affect the interest rate but it does affect the amount that you know they're all ignored. So it doesn't affect the interest rate, but it does affect the amount that you can borrow in total right, because presumably they'd lend more to someone who has a bigger income that they extrapolate forwards right, well, it's, yes, it's.

Sarah:

It's like typically around five, five and a half times. But right, you, you might, you're not going to get five and a half times with a five percent deposit I see you know, because that again, that is risk from a lender's point of view. Uh, they're prepared to take a larger risk if you're, if you're prepared to put down, let's say, a 25 deposit and let's say the dentist decides to go limited as well, will they take?

Dr James:

will the lenders take into account profit, retain, profits in the company, or is it purely our drawings and personal income from the company?

Sarah:

so if we're going pay schedules, it doesn't matter, right, they won't? So you could have three months where you've switched from sole trader and then you've got two months of your income going into a limited company, as long as we can evidence that that income is going into either your personal name or a business of which you own and it's your pay schedule, that doesn't matter.

Dr James:

Interesting, so they don't really care.

Sarah:

So they don't look at your expenses at all Well, other than your personal expenses. So if you've got £1,000 a month, car in your personal name, pcp, something like that, that will come off. So when I say five, five and a half times income, that is on the basis that you've got no commitments, so credit cards that aren't cleared in full each month. If you've got children, that's their unfortunate last of commitments, which they are Unfortunately, it's just commitments which they are and then personal loans, cars in your personal name. So if you've got an associate, for instance, or a principal for that matter, that has a company car through their limited company, that won't be taken into account as a commitment interesting, so it's probably worth speaking to a mortgage broker early doors to figure out what is a commitment, inverted commas and what isn't, because it sounds like that five, five and a half figure you talked about just a second ago is in in a way well, not even in a way.

Dr James:

This is what it is, literally what it is. It's net after your commitments. Right, and commitments are well, it's basically the terminology that they use. It's their own little nomenclature or terminology, so it's good to just establish what they mean by that.

Sarah:

Yeah, mean by that? Yeah, so if you wanted to see what they'd class as a commitment, you can go on to the money supermarket website and download your free credit report from there. It's free for life. Money supermarket, um, and those commitments that are on that are the ones in your personal name, and the lend a lender will see that as well great little factoid on mortgages right there, very interesting.

Dr James:

Okay, we've covered associates. Any more nuance we need to know to that, or we've done a good job there no, I think we've done a good job.

Sarah:

Yeah, hey, clap up. You've done a good job of extracting the info from me I don't know about that.

Dr James:

I don't know about that. Uh, anyway, anywho, moving on principles, you said that it's a little different for principles, right, because they don't usually have. You're quite right, they don't usually have pay slips. They I mean, in my experience, obviously not every principle is the same. Some. Some do have pay slips, to be fair, but they're not that common, right. I mean, the majority of the time, from what I see, they'll keep. They'll keep a load of routine they'll. They'll learn, they'll what I see. They'll keep a load of routine, they'll learn. They'll work on their practice, they'll keep their gross in the practice and then they'll just pay themselves like a salary every month 50K, yeah, salary and divs 50K, partner salary and divs 50K.

Sarah:

So they're taking 100K out of the business nice and tax efficient each year, or joint 100K each. But yes, I see lots of that where, let's say, the profits are 300K each, but their husband and wife husband and husband, wife and wife not being discriminative might take 200k between them, but they've made profit either before corporation tax or after corporation tax might be, let's say, 300k, 300k so. So I've got lenders that will use that 300k rather than what they're drawing, uh, and that can make a significant difference oh, and that's even for the principal.

Dr James:

Retained profits for the principals is what you're saying, right? So that is also possible too. Yes, yeah, yes, yeah. And then how does that differ with regards to? You said that the associates just need the three months of pay slips, right? Is it the same time frame for principals as in three months of I know they don't have payslips but three, no months of. It has to be longer. Is that right?

Sarah:

so yeah, because, because, what, what a lender needs to? Because the thing is, associates are easy because their income, that they receive from the principal, is their income, whereas what it's really hard to prove with a principal is right, ok, there will you know. Typically a practice will have fixed costs every month but there might be one-off costs once a year. You know, like I don't know, gdc, um, pi insurance might be annual payment and that could be a 20k payment for the professional indemnity insurance. So so what a lender really needs to see is a year yeah, you know, a year of accounts.

Sarah:

So if you've changed entity, so you've gone from sole trader to a limited company, some lenders haven't got an issue with that. So you can do that within three months of going limited. That's fine. Some lenders will have a major issue with it, but there are avenues for that. If you've just gone from sole trader to limited or vice versa, we've got homes for that. If you've gone limited but you want to use limited profit and your income has increased significantly, we need to have one year of accounts. No-transcript.

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Dr. James Martin

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