Dr James, 0s:

Us dentists know that getting a mortgage for ourselves is not always the easiest thing to do. And really, it's a good idea to get some special input because our incomes are complicated. But why is that the case? We're going to be covering that today. Why it is different, the stuff that we need to know in order to navigate the mortgage landscape and what we can do about it in order to get the best deal. I have with me today expert, mortgage broker to dentists, Mr. Will Coe. Looking forward to getting stuck in. 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. Why are Dentists considered to have complex inverted commands income in the eyes of the lenders?

Will, 1m 18s:

So I think a definition of complex in itself is that it's complicated to understand. So what we know is, as with a lot of people that are perhaps self-employed, is that there's different streams in which the income comes from. So where there's different streams is how is that then presented to a lender? And quite often, you know, you've got an underwriter that may be looking at a case, they want the simplest way to understand this because they're the one that's basically signing off hundreds of thousands of pounds worth of funds. Is this a safe investment the other way around? So for them, they want to really understand it. And kind of the simpler we can make that, then the easier it's going to be. So complex incomes, I think, for dentists, lots of different streams, whether you're employed, sole trader, or operating for a limited company as a partnership or by yourself, you've got so many different streams of income. So understanding it and making it simpler for an underwriter to understand is probably the key thing.

Dr James, 2m 15s:

Understood. So really, the second that we stop being in an employed dentist, as in working in an NHS hospital, for example, we're then all of a sudden considered to be complex in Verticomas in the eyes of the underwriters, which is basically probably 98% of dentists anyway. Would you even call it even a self-employed associate who's who's trading as a sole trader is technically complex?

Will, 2m 42s:

Yeah, absolutely. Oh, and and sometimes even even more so, because if it's a partnership, um, you know, what what percentage share do you have of the company? So what are you entitled to? What could you withdraw? Um, you know, the turnover, what what is what is your contribution to that, I suppose? So it yeah, it is just as complicated.

Dr James, 3m 5s:

Interesting. All right, let's get into it then. Let's talk about Dentists and their mortgages and what they can do to navigate the landscape of borrowing guests in order to get the best deal. Because if you think about it, this is such a pivotal decision of our lives, right? Our careers. We are saying yes to something that we're gonna have to be bound to repay for 25 years, potentially. Uh more than just always 25 years, are they?

Will, 3m 35s:

No, you can have longer.

Dr James, 3m 37s:

Oh, there we go. I'm learning as well. Interesting. So there you go. So you can have longer if you wish. Uh, but yeah, anyway, so obviously this is a massive decision. Let's talk about the dentists who are soul traders, first of all. Let's keep it nice and simple and then we'll build up in terms of complexity, I would suggest. So let's say NHS, soul trader, close to 100% NHS. We've obviously got to factor in UDAs because that's how dentists get paid. What do those dentists need to know, or what can they do in order to get the best deal versus going to a standard broker?

Will, 4m 11s:

Okay, fine. So I think a couple of um, let's get a couple of misconceptions out of the way is that a lot of people that become self-employed, okay, the immediate reaction is, oh, I can't get a mortgage. Okay. I don't believe in that phrase, I can't get a mortgage. Anyone can get a mortgage, it's just a question of how much. Okay. So that that key question about how much is where a broker will spend time understanding, firstly, how much you're earning to your income, what's your expenditure, and then like an affordability assessment. So that's kind of the first bit. So the income, if you're a sole trader, you know, or you know, you are employed by the NHS and then you've got private work as a sole trader. It's no different, really, to let's say a barrister. It's no different actually to anyone who's employed that has a side hustle. Okay. You're employed, you've got a main income. That can be assessed as a basic income. Where you're a sole trader, you've got additional income you've got coming in that then you deal with your own taxation for. That's the definition of being self-employed. And so what a lender would probably look at is they want to see two years' worth of accounts of you being a sole trader. There are some that will do one year's worth of accounts, but you've got your employed play-sips, you've then got additional work that you do where you do your own tax calculations, and you'll have uh what we call like an SA 302 at the end of each year, and on there it'll detail what's your employed income, what is your self-employed income, what's the total amount that you're, you know, that that's due to be calculated for tax. And that that's just that is simply what it is.

Dr James, 5m 47s:

Nice. And that's the standard way of doing things. But I know that we had some other podcasts recently um where there was the the the guest was saying that there are certain lenders out there who will even consider less than one year. Yeah, absolutely.

Will, 6m 0s:

So it it it depends on what the or or the way in which that income is made up. So, you know, another portion of what we specialize in is contractors. Okay, so you might have a locum worker who is assigned to a particular practice on a self-employed basis and will have a contract. And that contract might be for three, you know, six, nine, twelve months. If you think about a contract of employment, everyone has a contract of employment. The difference with this is that it's short term, so it's temporary, and you're dealing with your own taxation. But if you've got a contract of employment, it kind of means that you've got a guaranteed amount of income in that period of time. What's more is that some lenders would also look at what you're invoicing. So they might look at the last six months or three months worth of invoices to say, right, here's the additional income, here's how we've calculated that before a tax calculation's been submitted. You know, and that's very common, particularly in the medical industry, which you know, dentists are included in.

Dr James, 7m 1s:

Interesting. And how many, how many uh of the uh, how can we say this, underwriters out there know what a UDA is or how that works? Is that common? Does that restrict the amount of people that will be able to borrow from?

Will, 7m 16s:

Um no, so I think a lot of underwriters will be aware of it, but it's not the underwriters, it's the brokers. So the brokers need to be aware of it to be able to present it to the underwriter in the right way. And you know, quite often, you know, we've had many phone calls with people that said, Oh, I've gone, I've gone to a broker that's fairly generic or non-specialist or direct to a lender, and you know, I don't feel like they're understanding my income. You know, so we would sit and have a conversation spend time understanding what they do, and then would look to present it, I'm gonna say, in the right way or in a way that's understandable, that includes everything. So then the underwriter goes, Oh, that's what this is and then know how to assess it. So you know, it's one of those things. If you present, you know, if you present an apple to someone, it's an apple, you know. But if you then present a pair, it's a pair. Sometimes if it's an apple and they're looking at it, you're trying to convince them there's something other than an apple, they're not gonna shift. You have to present it in the right way that's easily understandable and evidence.

Dr James, 8m 17s:

Understood. Okay, so we've just dealt with sole traders, and these are the a few of the caveats that it's good to be aware of. Let's talk about limited companies. Yeah. Specifically associate dentists who trade as limited companies just for the moment, and then we can move on to principles a little after that. Although, having said that, maybe the rules are similar-ish. I guess we'll we'll we'll find out, won't we? Yeah. Now, traditionally, correct me if I'm wrong, Will, a lot of the underwriters slash brokers out there will they won't really treat retained profits in the company the same as well, withdrawals from the company. So let's say everybody's trying to be tax efficient and they want to keep their earnings or their income, their personal income, to 50k a year, then what that can mean is well, they've only got 50k a year of earnings in the eyes of the brokers, even though they've got much more in their limited company, which will obviously restrict their borrowing. Is that still the case?

Will, 9m 24s:

Yeah, absolutely. If you think about it, you know, that the lenders looking at a very traditional sense is you're one of two things, you're either employed or self-employed, right? So when you're self-employed, what are you a sole trader, a director, a partnership, so on and so forth. So if you go down the idea of a limited company and include those perhaps in the partnership, is the traditional view is what is your taxable income? Okay, now your taxable income is what you've otherwise declared to HMRCs, would be your salary and your dividends. Okay, now, as you quite rightly pointed out, James, is that if you're tax efficient, you're only going to withdraw what you need to withdraw. That's the benefit of using your own limited company. That's the benefit of being self-employed. But the problem with that is that if you're now looking to get a mortgage, your liability is going to increase. So how can we show that you can afford to increase what you pay yourself when the liability increases? Because you've withdrawn very little, you've got lots of retained profit. And this is where we have some of these policies that allow us to look at that net profit. What we're talking about is how much are you actually earning for your company is X amount. Yes, you're withdrawing this, but what can you withdraw? And so this is where you know, very few lenders, but more coming into this now with looking at the net profit of the company plus the salary you're withdrawing, because that is feasibly what your future income's going to be.

Dr James, 10m 50s:

I see, particularly in the case where it's associate limited companies, you know, there's no real outgoings in the company other than what they're paying themselves, right?

Will, 10m 59s:

Yeah. Yeah, absol absolutely. And so then we come down to the thing of like partnerships and what's your shareholding, and you know, you've got the company as separate, you might have your own company that is working relationship with that. It can become very, very complex with lots of different layers. The role of a broker, and certainly what we would do is sit down and try and strip back those layers to go, right? What is the simplest way to present this? You are a dentist, you are operating as you know, self-employed, so you're dealing with your own taxation. How does your income look? And we would look at things like what is your shareholding of the company? So if it's 50%, 75%. So what's your shareholding of the net profit of that company that you're entitled to? You know, it is those further questions that we have that we'll start to understand, and then build up a case that we can then present to a lender to say, here is James, he's a dentist, here's he's got a 75% shareholding of this company, and here's the net profit of that company, and here's 75% of it. Oh, and here's what he's paid himself as a salary. Then we use that for the purpose of affordability. Does that make sense?

Dr James, 12m 8s:

It does, yeah. And it's amazing that how many people out there nowadays uh still don't know that that's possible, and how many people are fed that narrative, and it puts it puts them off borrowing for a long, long time. Whereas actually it is possible you just have to have the right lenders in your back pocket.

Will, 12m 28s:

Yeah, absolutely. And then the other challenge in all of this, though, is about the longevity of the work. So you said earlier about having like a 25-year mortgage term, you know, depending on your age, actually, most mortgage terms that certainly looked at has been in the rounds of 30, 35 years. People often can take a mortgage up to the age of 75, up to the age of 70 or 68. You know, there is a lot more flexibility around the marketplace based on individual circumstances. But, you know, when you look at the the mortgage that you want to have and how long you're going to have that for, the longer you have the mortgage load of repayments are going to be, the less income effects we would need to present. But the real concern of a lender is how you're going to, you know, if you're self-employed, COVID is a good example and your work dries up, you know, how are you going to carry on making these mortgage payments? Now, one of the really great things when you look at employment, and this is why I want to split away from tax status and look at employment, is do you work in an industry where there's longevity in the work? Well, take social workers, for example. Yes. You know, we're crying out for social workers, you know, unfortunately. And so what's the chance of if this work dries up, can you get new work? Well, yes. And I think it's the same with dentistry, is we're crying out for more NHS dentists. If suddenly the private work completely, you know, flatlined, could you go get employment as an NHS dentist? Yes, you can. So there is longevity in the work that you do because the demand for it is really, really high. And that gives comfort to the lender that not just that the mortgage is affordable, but it's affordable for the long term. Does that make sense?

Dr James, 14m 10s:

It does. It does. It means that they're more willing to lend to you.

Will, 14m 16s:

Yeah. And I think this is probably, and this goes back to what we're talking about, you know, complex, doesn't have to be complicated. Is we want to simplify this. And we simplify it by looking at the individual. What does that person do for a living? How do they earn their money? And then how can we evidence the money that they are earning to maximize their potential for mortgage funding?

Dr James, 14m 41s:

And you know, let me share one other thing on that, actually, uh, which is interesting, you know, just uh with relevance to what you just said, uh, because because, because, because where was I going with that? Yeah, when it comes to your limited company and when it comes to the retained profits that are in there as well, does that change? Does how the lenders and brokers uh how they perceive you from a risk perspective change in any way the second that you've got all these additional moving parts, as in you've got your own dental practice, for example, and you're still technically an individual that's making drawings from a company, but the company's way more complicated at that point, right? Like it's not just a company which is basically just a tax shelter for your money. I mean, it is that, but it also has all these other variables in there. Does the logic still hold true? Are they are they a little bit more wary in that situation? How does things change?

Will, 15m 37s:

Well, I think you know, is it's about risk and probability. So what is the risk? Okay, so the risk is that the company goes completely under. What's the probability of that happening? You know, that that's probably the key metric we'll look at. And this is why for us, focusing on an individual and what they do for a living and what's the probability they can continue working if the worst was to happen in terms of employment and work dries up. That's what we would look to do and look to present. I don't know if that answers the question. But I think for a lot of people is that is the risk, the risk is no different. If someone's permanently employed, they could be pulled into the office today and told that now redundant. That's the risk. What's the probability of that happening?

Dr James, 16m 22s:

Yeah. No, that does answer the question because you're basically saying it's the same, really. Whereas you're basically saying it's the same. That is clarity right there. You know, it's not that it's any uh, you know, it's viewed in any different terms, which which is which is useful to know in and of itself. And how does that affect the interest rate then? I know interest rate isn't the only parameter which determines how much you're going to be repaying every month, but as a very crude way of licking your finger and sticking in the air and saying, okay, there's an approximation here as to how negatively that we're impacted by one situation or the other, how would the interest rate be different, let's say, in the situation where someone has a load of retained profits in their company versus getting paid exactly the same amount of money but into a personal name? If you're a UK dentist and you wish to add to your verifiable CPD portfolio for this learning cycle, it's worth knowing that DentistWhoinvest has over a thousand minutes of free verifiable CPD on our website. Just simply head over to www.dentisthoinvest.com and hit the videoslash cpd tab, and you can go right ahead and help yourself to as much CPD as you need. You'll also find a link that takes you straight to the CPD section of the Dentists Who Invest website in the podcast description.

Will, 17m 46s:

Okay, so again, it's looking at and I think the focal point is the assumption of oh, because I've got this type of income, my mortgage is going to be more expensive. Okay. So if we take that to one side, what we've got to understand is that there are hundreds of lenders out there, and all of them have different policies, different kind of risk appetites. You know, if we look at what we have of the high street, which is the likes of Halifax, Netwest, Nationwide, Santander, HSBC, you know, the big ones recognize, you know, a lot of them, when they're self-employed, because they're so big, they'll want to keep it nice and simple, salary and dividends. But then a layer under that, you've got some really good other lenders like Commentary Building Society, Accord, which is part of the Yorkshire Building Society as well, Skipton Building Society, Principality as well, really good lender. Um, all of them have got this type of policy where they can look at net profit. So they can look at retained profit, but their interest rates are just as competitive as what you find from those big lenders on the high street. And that's not to say those big lenders on the high street wouldn't look at it. Like I said, it's about how we present the income. So like I said, we're starting to see more and more lenders adopt this stance of let's have a look at the net profit and see if we can use that. It's it's relatively new into the marketplace. I think traditionally, you know, I could be wrong here, but the only lender was really good at doing that for many, many years was Clydesdale, you know, which is now part of Virgin. Virgins still look at income in that way as well. So I think the misconception, you know, from the space that we come in historically, we're professional day rate contractors in the IT space, is I'm a contractor, I'm looking for a contractor mortgage, therefore it's going to be more expensive. The first thing we kind of say to people is there isn't any such thing as a contractor mortgage. What we're doing is presenting you as a contractor to a lender, the same lender that someone that's employed can access, but we're presenting you in a way that is understandable, that the underwriter could be comfortable with lending to you. So you're not being penalised for having a higher interest rate. What you're doing is meeting the affordability of the lender so that mortgage funding is acceptable, you know, and it's the same kind of rate that you'll see. So based on your circumstances, if you were going to X lender, if you were employed or self-employed, you're still going to X lender because that's the lender that's willing to lend to you. Does that make sense?

Dr James, 20m 13s:

It does, absolutely. And that's that's it, it's it's I understand what you're saying. You're what you're saying is there's no such, I think you said this off camera, but just to requote you, because it uh it it uh how can I say this, it sort of resonated with me. Uh you said that there is no such thing as a dentist-only mortgage, right? Or a dentist-specific mortgage, right? It's all about how you present the info to them. And we and and be basically as long as we're treated uh similarly to these other, how can I say this, uh, professions which have complex income inverted commas, that actually there's a lot of parallels there. So, in a way, when it's presented in the right way, well the brokers understand it or they get it.

Will, 20m 57s:

Yeah, because it's gonna attempt an analogy that it may be completely off-piece, and you might turn around and say, No, you've got that completely wrong. But I'd imagine if there was a dental problem, two different dentists will look at it in two different ways and they'll tackle it in two different ways.

Dr James, 21m 12s:

Three different ways. Three different ways. Sometimes it depends on the weather exactly.

Will, 21m 17s:

And for us as brokers, it's similar is that it's about a broker's understanding of right, how can we present this income that fits the that policy of the lender that's gonna work and give the result? One of the things that we like to talk about is, you know, what is the motivation? You're looking at buying a home. Why are you looking at buying a home? Like, what is the priority? My job is to help that you know dream come true. You know, how can I do that in the most effective way that's gonna mean that what you want to do is possible, you know, and that's that's that's the way in which we certainly go about the work in which we do. And if if it means you can't get a mortgage from Halifax, but you can get a mortgage from here, that's the difference between you being able to buy the dream property or not. And most people are pretty accepting that that is what it is.

Dr James, 22m 2s:

Nice. Tell me this. Obviously, interest rates are well, it's not clear where they're gonna go for the moment. Is now a good time to if if someone's let's say someone's mortgage is coming up for renewal uh pretty soon, is is now a good time to take out a mortgage, or is now a good time to think about renewing your mortgage?

Will, 22m 24s:

Oh, it's this is this is like the question.

Dr James, 22m 27s:

And I know that that's I know that that's slightly curvedball question, but that's how people think, right? That's how everyone thinks.

Will, 22m 33s:

Oh, 100%. And it's conversations we're having all the time. So okay, if you're remortgaging, okay, you should be looking at securing an interest rate six months before that rate comes to an end. Okay, that that that's the that's the sweet spot. A good broker, so what we would do is, you know, I've got a client today, we just secured an interest rate for a remortgage that's due in six months' time. Why? Well, if interest rates go up, we've secured a rate that's lower, that's not changing. If interest rates go down, I've now got time to switch that rate to the lower one that's available. So I'm always ensuring that the client is getting the best deal possible. Okay. And we can do that six months out. The reason why is on average, mortgage offers last about six months, okay, before then you have to renew the offer and and and potentially that rate's gone. So you can secure that for six months, which is why that's a sweet spot. So if you are remortgaging and your remortgage is due in six months' time, get on the phone and give us a call and let us have a look at what rates are available because uh securing an interest rate today could save you money in the future, or will always ensure that you're getting the best deal possible. And that's certainly what we would do. The reality is that we don't have a crystal ball. And when people say, particularly, oh, when's the best time to buy a property? It's always in the past. You know, we're very good as human beings looking back in hindsight. Oh, in hindsight, I should have done this, I should have done that. No one knows. And this is where we go back to that thing we said earlier is that it's about what's your motivation, what's your priority? You should be led by that because what's the alternative? And some people said, Oh, I'm gonna, I'm not gonna buy now, I'm just gonna carry on rent, I'm gonna wait until the market improves. You know, what define that? What do you mean by market improves? Well, until property prices fall, that might be another five years, all the while your rent's going up, you know. It's that sort of conversation about what is the priority? Well, I want to move, I want to have my own place, not paying rent. Okay, well, we can make that happen. And whatever that property price is, the property price is, you know. And I think um, just from personal experience, you know, I've always I think a part maybe of a generation have just missed out. I think when we we sold um our home a few years back, we sold it just before they then put the break in terms of the stamp duty holiday. So we paid stamp duty. If we waited a couple of months, we wouldn't have had to pay stamp duty. And it was like there's never a right time. The right time is based on your circumstances and when is the right time. It shouldn't be led by I'm gonna wait for interest rates to be lower because it might never happen and they might go up. It shouldn't be I'm gonna wait for property prices to fall, because it might they might not fall. And all the while, what are you paying out until that happens? Because then it's interesting.

Dr James, 25m 23s:

And then just one more thing just to round off. Obviously, there is some changes afoot tax-wise, which are gonna kick in on the 6th of April. Changes to BADR is an example of that. Are there any property-specific changes that are coming up on the 6th of April that we need to be aware of, which incentivize us to think about maybe moving things forwards a bit sooner in the property front?

Will, 25m 51s:

Not sure. We're waiting for the budget, aren't we? Um, and there's uh obviously we've got the mini budget coming up.

Dr James, 25m 57s:

What I mean is the one that was previously announced. Is there any ones that Dentists should be aware of? People should be aware of.

Will, 26m 2s:

No, a lot of the big changes that were in place are in place. So Stamp Duty was the big one. They they kind of introduced that overnight. Um, I think December last year and December, yeah, December last year. Um, no, there isn't any big ones at the moment that we're aware of. What I think nervousness of the market at the moment is the housing market is pretty stale at the second, it's pretty stagnant, and property prices in areas are falling, they're increasing slightly, interest rates are around about that four and a half to five percent mark. We've seen some rates that are yes, you know, maybe 3.9. Um, but they've kind of gone and they've all increased. So at the moment, we're we're going through this this light tide of rise and fall that you would naturally see. But I think the market feels like it's nervous about yes, this this mini budget that's coming up and what perceived changes could then take place that will then come into effect next April, if or earlier. And it's a bit of nervousness around that.

Dr James, 27m 4s:

I see. So we're gonna wait and see on that one. Nothing, nothing that we know of so far from the last budget, but things could very much change. And I know Rachel Reeves has been probing with uh tax rises. I've seen, I've seen, you know, when they you know what the government do, right? They they'll they'll they'll test the water by saying something along the lines of, hmm, well, I'm thinking about it, uh, just to see how it's gonna go down, and then based on the public response, they'll either do it or not do it. Uh I've I've known it, I think there's a little bit of that going on at the minute. Anyway, I guess we're gonna find out, aren't we?

Will, 27m 38s:

Absolutely. But the other thing is, you know, I think some of the changes that happened before, you know, you think about the employer's tax national insurance contribution. So look, James, uh, it's been absolutely great being on this podcast with you. It's the first time I've done a podcast, and it's been never you honestly could not tell fair play.

Dr James, 27m 55s:

I wish my first podcast were I was articulate as you were just like chatting, what can I say?

Will, 28m 2s:

Um but I'm just gonna give a quick shout out. So I we've talked about it, I know that we have, but I've had some dental work done and had some severe dental pain, and as you said, it you're a bit of a geek for this sort of thing, and we've shared images. I can't remember what you said it was called, but um Glenn Home Dentistry up in uh sort of Basin Stoke is where I went. And just a shout out to the guys there, because he said he is part of the group, and we had a bit of a conversation um last week, thankfully, like before, you know, I had stuff in my mouth, um, just to talk about mortgages and things like that, and that it is possible and sort of said that I was doing this. So we'll we were both excited about doing it, but it's been absolutely great. But likewise, for any of you listeners, um, you know, in terms of my details, you can drop me an email um at William at Cleerly. So we spell clearly differently, so cleery.co.uk, um, or you can just give me a call, 02394-212903. Um, and I think you'll probably have the links, etc., that people can access. Um, but look, we we really enjoy talking about mortgages. We enjoy having a conversation, and for us that is very much the priority. Let's just have a conversation and understand what it is you're looking to do, and then we'll find out what's the best way to help someone achieve that goal. I think we sort of in a society, aren't we, where we're kind of nurtured to believe that home ownership is the goal, and a lot of people strive to having their own roof over their head. You know, we want to make that as possible as as we can. And we've had a lot of success doing it with the kind of complex space.