In theory, getting a mortgage as a locum doctor should be easy. NHS staff shortages. Income of £220/day. Hours available over and above the normal working week. NHS staff shortages (did I already mention that?). What’s not to like about locums as a mortgage applicant?
On the surface, everything looks rosy. But dig a little deeper and you’ll find locum doctor income – and the structure thereof – can be labyrinthine.
The red tape around working as a locum doctor
In August 2013, the NHS produced a 16-page document on how to work as a locum doctor. 16. Pages. Can you imagine what that says to a mortgage advisor when they come to look up how to assess your income? Yikes!
On top of that, the BMA has outlined its own employment guidance for junior doctors taking on Locum Work. First, the intention to work such hours has to go through the NHS Staff Bank. The union’s outline can then fluctuate, depending on adoption or not of WTR. And those hours are subject to negotiation at a local level through the JLNC.
To muddy the waters further, much has changed in more recent years for public sector contractors. Automatic payroll has seen a swathe of medical professionals switch to umbrella contracting. Even then, HMRC vetoing travel and subsistence expenses has impaired the effectiveness of that payment management strategy.
So, how can a locum doctor prove that they can afford a mortgage when their income is, to the untrained eye, insecure?
Locum Doctors: Payment Structure Choices
Locum doctors have three ways they can manage their income:
- as a regular employee
- as a sole trader
- as a limited company freelancer/contractor (PSC or umbrella)
The easy option (for mortgage purposes) is to take on locum work as an NHS employee. As far as calculating net salary goes, it’s straight forward.
There are two huge downsides. First, the eye-watering amount of tax and national insurance you’ll pay. On a gross rate of £220/day over 46 weeks, that’s £50,600 a year which puts you straight into the higher tax bracket. But only just (currently £46,351). That’s going to have a knock on effect to your disposable income.
Ah! You say. But I don’t work 46 weeks a year. I only pick up locum work here and there.
And that’s your second downfall. How can you expect a novice advisor to work your income out if it’s irregular? In short, you won’t stand a great chance of getting your mortgage based on an income that’s less than full time. You have played right into their hands there.
Okay then, you say. I’ll go self-employed as a sole trader. That’s fine. But here’s the thing. Mortgages aside, you’re going to accept responsibility for every aspect of your business. That includes tax, national insurance and debts you accrue.
At the end of each tax year, you’re going to have to declare everything to HMRC to get your SA302. HMRC will allow you some expenses, but the list of those permissible is getting fewer and fewer.
You’ll then have to present your SA302 to a mortgage advisor who’ll tell you two things. First, they’ll often want to see more than just one SA302. That often means at least two years having worked as a sole trader.
You’ll face the barrier of insecurity, warranted or not. That’s because you’re unlikely to have a long-term contract working this way. Also, your SA302 figure will be the one after you’ve deducted all your expenses. Given how low that might be, it may not be the best example to use for a mortgage application.
The third option is to go in as a contractor. You can either use an umbrella company or incorporate your own limited company.
The latter is often the most tax efficient. Umbrella companies will help you claim all your permissible expenses. They’ll try to make sure that you claim all the expenses they’re safe doing so on your behalf. But thy don’t do it for free.
As a limited company director, you’ll have more control over what you can and can’t claim. But you’ll need to hire an accountant to not only claim what you’re rightfully allowed to, but also to help you stay on the correct side of IR35, i.e. outside it.
Whether you go umbrella or private limited, you’ll have to prove to the NHS that you’re IR35 compliant. And either way, you’re left with the same dilemma as if you go the sole trader route.
The post-tax income that an accountant/umbrella company generates for you is misleading. It’s so far removed from your true mortgage affordability an untrained advisor won’t be able to reconcile your top line with the figure you submit to the taxman. Alarm bells all around, so what can you do?
Call a specialist, reduce the waiting time
There is no easy answer. The first thing you should do if you’re a self-employed locum doctor is talk to a specialist broker.
Brokers who specialise in self-employed mortgages understand fluctuating income regardless of profession. They often deal only within their specialist niche. They are thus in constant contact with decision makers at self-employed friendly lenders.
They understand the laws and regulations motivating mortgage lenders. They know what influences decisions and they can package your mortgage application accordingly.
Yes, your income can fluctuate. Yes, you can manage your payment structure in a number of ways. But you won’t get that level of understanding in your local branch on a Saturday morning.
Pain Management: get access to an underwriter who understands your income
Let’s give it to you straight: your income is non-preferred. The specialist underwriters you need are likely to operate out of head office, not on the High Street.
You’re a doctor. You know how it works. If you broke your ankle playing hockey, you wouldn’t go to your GP to get it fixed. You’d go straight to the fracture clinic and have a specialist sort it for you. It’s the same principle with mortgages. Locum doctors have specialised income models, work indifferent hours and rarely the same week twice in succession.
So, despite the volume of hours you work and the money you earn, status alone might not be enough. Your income structure doesn’t fit into the standard High Street lending model. In branch, you’re unlikely to get the loan to buy the home that your income and hard work deserves. A broker who specialises in variable self-employed income is your best bet, always.
Author: John Yerou
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.