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

Do your mortgage repayments feel high?
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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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. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Episode Transcript

Dr James (00:00):
Do we need at least two years of accounts in order
to get a mortgage as dentists?
Well, certainly, if you go tothe high street banks, that's
what they would have you believe, but actually there's a little
bit more to it, more than alittle bit more to it.
That's why I have today with mespecialist dental mortgage
advisor, Sarah Grace.
We're going to be talking aboutthe real truth, the real answer

(00:22):
to this subject how us dentistscan obtain a mortgage for less
than two years of accounts andalso the nuances of how it
affects not only associates butalso principals too.
I'm also happy to share thatthere is free, verifiable CPD
associated with this podcastepisode.
Whenever you finish the episode, all you have to do is click

(00:43):
the link in the podcastdescription.
It'll take you right throughthe Dentists Who Invest website.
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable CPD hours during this

(01:05):
learning cycle.
This episode is a little bit ofa myth busting episode, because
I was someone who previously, atone stage of my life believed
in this only because I went to abank and asked them when can I
get a mortgage?
And they told me that they had.
I had to have two years ofaccounts before they'd even
consider me and me withoutquestioning it.

(01:25):
I was just mortgage.
And they told me that I had tohave two years of accounts
before they'd even consider meand me without questioning it.
I was just like, okay, thenthey're a big, mainstream high
street bank, they'll know whatthey're talking about.
And then, many years later, Ifound out it wasn't even true.
So I guess today is to answerthis question definitively Can I
get a mortgage with under twoyears accounts as a dentist?

Sarah (01:49):
yes, you can.

Dr James (01:51):
A simple answer, it's a big old, yes, but with a few
ins and outs and nuances, nodoubt so.

Sarah (01:58):
So there's, um, there's two routes one as an associate,
one as a limited, as a sorry asa principal.
So, associates, if we justcover those off first, doesn't
matter whether you're a soletrader, limited company.
You can do it with just oneyear's accounts.

(02:22):
You know, obviously, two yearsaccounts just gives you more
options.
But what's really good is wecan 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 lastthree months payments, annualize

(02:46):
that and that's the figure thatwe can work off as your income.
So we've got a few lenders thatwill work on that basis.
Where that's also useful isperhaps you've changed entity
from a sole trader to a limitedcompany and that can cause
issues with some lenders.
Um, uh, or a lot of females outthere that have come off

(03:11):
maternity leave, uh, that messesup your tax returns where it
looks like you've had, perhaps.
Well, I had one client who'dhad three babies over five years
and it messed up five yearsworth of tax returns.
So that's really, really goodin those scenarios.
So, three months pay schedulesfor any associate, that pretty

(03:36):
much covers all bases if wecan't use accounts or tax
returns, so that's an easy oneThen principles, unfortunately,
because if you're using, youcan't pay yourself a pay
schedule, so we do have to gooff accounts or tax returns.

(03:59):
So it can be like a principaltypically has a history of being
an associate or anotherprincipal, or so they have
typically got a history ofearnings.
So we can look at the historyand just because there is a
change, typically we want tohave a one year as the new

(04:20):
principal if it's a new business, um, but some principals still
have associate income.
You know, I've got quite a fewprincipals where they're perhaps
set up a squad um, and they'vestill you having the associate
income just to give them thatguarantee whilst things are
being uh, built up, um, so so wecould use both.

(04:45):
In those scenarios we can useaccounts 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 (04:58):
So big fat headline is that it is a yes, it can done.
We just got to know a littlebit more of the ins and outs of
how to pull it off If we homeright in on associates for a
start.
So, at the very least, whatyou're saying is we can begin.
Brokers will consider uswhenever we've hit three months.

(05:20):
We've got three months of payslips and I was interested to
know how does that impact uponthe interest rate?
I'm going to assume that theinterest rate is going to be a
little higher higher becauseyou're seen as a bit more risky.

Sarah (05:32):
It's marginal, marginal, yeah, uh.
So I I looked at this, uh, justrecently 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

(05:52):
first-time buyers are on a 10 or15 percent deposit, but they
had got quite a good deposit.
It would have been 4.48 on atwo-year deal had had they, were
they able to go to the market,and it was 4.72.
So you know, quarter of apercent, wow, it's marginal.

(06:15):
Yeah, obviously, a quarter of apercent on a million is more
than a quarter of a percent on300k.
So it depends on how muchyou're borrowing as to how large
an impact that has for youInteresting and does the
interest rate?

Dr James (06:31):
is that purely a function of the deposit that
you're putting down?
Plus, obviously it's going tohave some bearing on the market
as well, and what's it what it'sdoing?
But does your level of incomeon those pay slips determine the
interest rate to a degree aswell?
So, for example, oh, it doesn't.
So someone can be post fd justto really spell that out for the

(06:52):
dentist listening someone canbe post foundation dentist.
You know, not really hit theirstride whenever it comes to
their earnings.
Yeah, maybe they're bringing inthose payslips, just say like
five grand a month, five grand amonth, five grand a month.
And then versus somebody elsewho, for whatever reason, has
had to become an associate again, and they're bringing in like
15K over three months.
That doesn't make anydifference.

Sarah (07:12):
No, no, the deposit, the criteria is the criteria.
So it doesn't matter whetheryou're earning 5k a month or 15k
a month, they will still workoff your last three months.
So you know, on your 5k a month, that's 15k.
Over three months, over a yearthat's 60k, which usually income

(07:36):
is 60,000.
So there's no tax taken offthat, there's no expenses, don't
forget, this is the gross.
So a lot of dentists will haveexpenses that they can deduct
from for a tax point of view, orcourses or anything like that.
They're all ignored.

Dr James (08:00):
So it doesn't affect the interest rate but it does
affect the amount that you knowthey're all ignored.
So it doesn't affect theinterest rate, but it does
affect the amount that you canborrow in total right, because
presumably they'd lend more tosomeone who has a bigger income
that they extrapolate forwardsright, well, it's, yes, it's.

Sarah (08:13):
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 fivepercent deposit I see you know,
because that again, that is riskfrom a lender's point of view.
Uh, they're prepared to take alarger risk if you're, if you're

(08:33):
prepared to put down, let's say, a 25 deposit and let's say the
dentist decides to go limitedas well, will they take?

Dr James (08:43):
will the lenders take into account profit, retain,
profits in the company, or is itpurely our drawings and
personal income from the company?

Sarah (08:53):
so if we're going pay schedules, it doesn't matter,
right, they won't?
So you could have three monthswhere you've switched from sole
trader and then you've got twomonths of your income going into
a limited company, as long aswe can evidence that that income

(09:14):
is going into either yourpersonal name or a business of
which you own and it's your payschedule, that doesn't matter.

Dr James (09:25):
Interesting, so they don't really care.

Sarah (09:28):
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 willcome off.
So when I say five, five and ahalf times income, that is on
the basis that you've got nocommitments, so credit cards

(09:50):
that aren't cleared in full eachmonth.
If you've got children, that'stheir unfortunate last of
commitments, which they areUnfortunately, it's just
commitments which they are andthen personal loans, cars in
your personal name.
So if you've got an associate,for instance, or a principal for

(10:12):
that matter, that has a companycar through their limited
company, that won't be takeninto account as a commitment
interesting, so it's probablyworth speaking to a mortgage
broker early doors to figure outwhat is a commitment, inverted
commas and what isn't, becauseit sounds like that five, five

(10:35):
and a half figure you talkedabout just a second ago is in in
a way well, not even in a way.

Dr James (10:41):
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 littlenomenclature or terminology, so
it's good to just establish whatthey mean by that.

Sarah (10:57):
Yeah, mean by that?
Yeah, so if you wanted to seewhat they'd class as a
commitment, you can go on to themoney supermarket website and
download your free credit reportfrom there.
It's free for life.
Money supermarket, um, andthose commitments that are on
that are the ones in yourpersonal name, and the lend a

(11:20):
lender will see that as wellgreat little factoid on
mortgages right there, veryinteresting.

Dr James (11:24):
Okay, we've covered associates.
Any more nuance we need to knowto that, or we've done a good
job there no, I think we've donea good job.

Sarah (11:33):
Yeah, hey, clap up.
You've done a good job ofextracting the info from me I
don't know about that.

Dr James (11:38):
I don't know about that.
Uh, anyway, anywho, moving onprinciples, you said that it's a
little different for principles, right, because they don't
usually have.
You're quite right, they don'tusually have pay slips.
They I mean, in my experience,obviously not every principle is
the same.
Some.
Some do have pay slips, to befair, but they're not that
common, right.
I mean, the majority of thetime, from what I see, they'll
keep.
They'll keep a load of routinethey'll.

(11:59):
They'll learn, they'll what Isee.
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 justpay themselves like a salary
every month 50K, yeah, salaryand divs 50K, partner salary and
divs 50K.

Sarah (12:15):
So they're taking 100K out of the business nice and tax
efficient each year, or joint100K each.
But yes, I see lots of thatwhere, let's say, the profits
are 300K each, but their husbandand wife husband and husband,

(12:36):
wife and wife not beingdiscriminative might take 200k
between them, but they've madeprofit either before corporation
tax or after corporation taxmight be, let's say, 300k, 300k

(12:58):
so.
So I've got lenders that willuse that 300k rather than what
they're drawing, uh, and thatcan make a significant
difference oh, and that's evenfor the principal.

Dr James (13:04):
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 differwith regards to?
You said that the associatesjust need the three months of
pay slips, right?
Is it the same time frame forprincipals as in three months of
I know they don't have payslipsbut three, no months of.

(13:27):
It has to be longer.
Is that right?

Sarah (13:29):
so yeah, because, because , what, what a lender needs to?
Because the thing is,associates are easy because
their income, that they receivefrom the principal, is their
income, whereas what it's reallyhard to prove with a principal
is right, ok, there will youknow.

(13:51):
Typically a practice will havefixed costs every month but
there might be one-off costsonce a year.
You know, like I don't know,gdc, um, pi insurance might be
annual payment and that could bea 20k payment for the
professional indemnity insurance.

(14:11):
So so what a lender reallyneeds to see is a year yeah, you
know, a year of accounts.
So if you've changed entity, soyou've gone from sole trader to
a limited company, some lendershaven't got an issue with that.

(14:33):
So you can do that within threemonths of going limited.
That's fine.
Some lenders will have a majorissue with it, but there are
avenues for that.
If you've just gone from soletrader to limited or vice versa,
we've got homes for that.
If you've gone limited but youwant to use limited profit and

(15:09):
your income has increasedsignificantly, we need to have
one year of accounts.
No-transcript.