An associate dentist with income in excess of £60,000 was recently refused a mortgage of £180,000 because they fell four months short of one lender's policy, which requires two years of self-employed accounts. To add insult to injury, the lender initially provided the dentist with a Decision in Principal certificate and swiftly took payment of a £499 arrangement fee, which they later refused to refund.
Such errors can have serious implications for borrowers in the form of a ‘credit spiral’ because mortgage lenders rely heavily on credit checking when assessing an application. Declined applications will no doubt set alarm bells ringing for any mortgage underwriter. Get refused credit twice in quick succession and your chances diminish further.
So, what can associate dentists do to avoid this situation?
Choose your lender carefully
High street banks work on a high volume business model driven by online underwriting. They probably won’t understand the remuneration arrangements for self-employed associates. Fail to meet 100 per cent of their lending criteria and you will find yourself subject to the computer saying no, a declined application on your credit file and potentially, as in the case above, at a financial loss. Some lenders still take a common sense approach to assessing your application. The challenge is identifying those lenders who have flexible criteria for dentists.
Maintain a healthy credit profile
Mortgage lenders keep the details of their customer credit scoring a closely guarded secret to avoid potential borrowers selecting against them. However, there are some quick wins to improve your credit profile. Make sure you are registered on the electoral roll and keep a detailed record of your previous addresses history, especially if as a dental student you have moved within the last three years. Existing credit can be an advantage as lenders like you to demonstrate your ability to repay. Avoid missed or late payments on any credit cards or loan agreements.
Can you afford the mortgage?
In addition to credit scoring, mortgage lenders rely on ‘affordability’ tests to assess your application. So think twice about that big car loan prior to a mortgage application. Student debt is less of an issue given the relatively low interest rates, however beware the graduate and professional loans routinely offered to dentists, where rates can escalate.
Get a larger deposit together
There are plenty of first-time buyer deals requiring a deposit of only 10 per cent but increase your deposit and the interest rate you will pay drops swiftly. Furthermore, a lender may be reassured if you are committing a greater deposit than the minimum requirement.
Above all be wary of your high street bank, especially if they offer a cash back incentive or if the branch sales person doesn’t understand the difference between a UDA and a UFO.
Jon Drysdale is an independent financial adviser with PFM Dental and provides mortgage advice exclusively for dentists. To find out which lenders are sympathetic to self-employed dentists, contact pfmdental on 0845 241 4480 or visit www.pfmdental.co.uk