Working in certain professions – as a teacher, solicitor or vet, for example – could grant you access to larger mortgage loans. Find out how it works and whether your job is in the running
When you apply for a mortgage, the lender considers a whole host of factors to work out what size loan you would be able to afford, and the main one among them is your current salary.
Typically, borrowers will not be able to take out a mortgage more than three and a half to four and a half times their annual salary.
However, some lenders offer a special type of home loan called a professional mortgage, which not only includes your current salary in the calculations but also includes provision for likely increases in salary.
As a result, borrowers taking advantage of these professional mortgage deals may be able to borrow more than they could with a more mainstream mortgage product. In some cases that will be more than five times their current annual salary.
Who counts as a professional?
The lenders that offer professional mortgage deals will have their own definitions for who should qualify for these deals. However, typically people working in the following roles will be able to take advantage of a professional mortgage: accountants, architects, barristers, solicitors, doctors, dentists, teachers, pharmacists and vets.
Lenders will generally look for you to be fully qualified and practising, as well as being registered with specific industry governing bodies.
For example, lenders may require dentists to demonstrate that they are registered with the General Dental Council, while vets need to be members of the Royal College of Veterinary Surgeons.
Why professionals can borrow more
The thinking goes that people working in these professions are likely to pose less risk to a lender of falling behind on their repayments than people working in other jobs.
In addition, these professions tend to have a clear career trajectory, with regular opportunities to increase your salary, which is why some lenders may be more relaxed about offering a larger multiple of your current salary.
Aaron Strutt, product and communications director at broker Trinity Financial, explains that certain lenders “like targeting professionals because they think they have better career prospects and they expect them to earn decent money”.
This may not be the case with other jobs, where pay rises are tougher to come by, and where the lender was taking more of a gamble by lending a larger multiple of your income.
Other benefits
It is not just the ability to borrow more that may appeal with a professional mortgage, as some lenders include additional benefits.
For example, it’s not unusual for professional mortgage borrowers to be offered an offset facility. This is where a savings account is set up alongside the loan, with any money deposited into that savings account offset against the size of your outstanding loan. You will then only have to pay interest on the difference.
Let’s say you take out a £200,000 loan and put £20,000 of savings into the offset savings account. You will then only pay interest on £180,000 of your outstanding mortgage.
This can be particularly appealing to self-employed professionals, who can save money towards their tax bill throughout the year in the offset savings account, and reduce the size of their mortgage repayments in the process. However, it is important to remember that this offset savings account is unlikely to pay any interest.
In effect, you are foregoing interest on your savings in order to cut the cost of repaying the mortgage. But in the current low interest rate environment, you are unlikely to be giving up much return on your savings.
Greg Cunnington, director of broker Alexander Hall, points out that an additional benefit to consider is that lenders that provide professional mortgages tend to offer greater flexibility when it comes to underwriting these loans.
He says: “For example, a partner at an accountancy firm may not have a tax return completed yet if they have been a partner for less than 12 months. In these scenarios, these lenders can look to work from a letter from the firm’s HR department confirming their income.”
Professional mortgages may come with reduced application fees too, though this will vary from lender to lender.
The lender will still need to ensure you can afford the loan
Negative points to consider
If you do opt to take out a professional mortgage, there are some potential disadvantages that are worth bearing in mind.
For starters, you may end up paying a more expensive rate than is on offer from best-buy deals for a similar loan to value.
Professional mortgage deals are unlikely to be the cheapest around, as you will be paying a premium for the added flexibility the lender is showing by offering to lend to you at a higher income multiple.
Mr Strutt also points out that if you borrow at a large income multiple, it may then be difficult to remortgage to another lender when your rate expires.
“If your property value does not increase and you do not make any real overpayments, there is a chance that higher multiples may not be available when you come to switch deals so you would then be reliant on your lender offering you another competitively priced rate,” he adds.
Also remember that while you may be able to take on a larger mortgage, the lender will still run the rule over your financial position to ensure you can afford the loan.
“Lenders want to provide more generous mortgages but they will still assess affordability,” Mr Strutt says. “So if you have credit cards, loans or children to provide for, they will still reduce the maximum loan size.”
Which lenders offer them?
Professional mortgage products remain something of a specialist offering, with only a handful of lenders, including the likes of Scottish Widows, Metro Bank and Clydesale Bank, offering them.
As a result, there is not a vast amount of choice, certainly compared to the range of deals you can choose from when applying for a more traditional mortgage.
However, Mr Cunnington points out that the past 12 months have seen some real improvements in terms of the number and types of deals that are available for professionals.
While most lenders that offer professional mortgage deals will lend directly to borrowers, you may feel more comfortable contacting a mortgage broker who can guide you to the lenders that are most likely to be receptive to your application and which deals best match your circumstances.
A broker may also be able to advise on which lenders take a more bespoke approach to underwriting, which could help you secure a deal if your income is a little more complex but you do not fall within the criteria for a professional mortgage.
What about key workers?
While teachers, and in some cases members of the police, are often covered by these professional mortgage deals, those classed as key workers – nurses, firefighters and paramedics, for example – are not so fortunate.
Workers in these fields face a particularly tough time getting on to the housing market. A study by Halifax in 2017 found that the number of towns in Britain classed as being affordable for key workers to buy a home in had dropped from a third (32%) in 2012 to just 14%. This was largely due to public sector workers being subjected to a pay freeze from 2011 onwards, while house prices continued to rise.
Unfortunately, although some lenders once offered specific deals for key workers, that is simply no longer the case.
That said, there are certain housing schemes designed to help first-time buyers get on to the housing ladder that may prove effective for key workers. One example is shared ownership, where the buyer purchases a portion of the property – typically between 25% and 75% – and then pays a reduced rent on the portion they don’t own.
Alternatively, there is the Help to Buy: Equity Loan scheme. Buyers only need a 5% deposit and can get a loan from the government worth 20%, with the mortgage making up the rest. The equity loan is interest-free for the first five years.
“With my mortgage deal, buying works out much cheaper than renting”
James Bellis, 26, qualified as a solicitor a year ago. He is using a professional mortgage in order to purchase his first property, a two-bedroom flat in Elephant and Castle, in south east London.
“Previously, I had been under the impression that the maximum I would be able to borrow was about five times my salary, and that no lenders would go above that,” he says. “But I read an article about higher income multiples from mortgage broker Trinity Financial, so I got in touch.
“The company ran through a mortgage from Metro Bank with me. As I was able to borrow five and a half times my salary, my budget increased quite a bit, and so I expanded my property search.
“With the property I’m buying, the mortgage repayments will work out as significantly less than I would be paying in rent for a similar property in the same area.
“I was always planning on using a mortgage broker to make the process as smooth as possible. My application was submitted at the beginning of November, and I had the mortgage offer just a couple of weeks later.”
JOHN FITZSIMONS writes for publications including The Sunday Times, Forbes, Mortgage Solutions and mirror.co.uk
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Source Moneywise http://bit.ly/2EnPQUP
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