Some qualified professionals have difficulty getting the best mortgage deal available or may even be turned down for a loan because of the automated approach taken by the lender. Stephen Little looks at how a professional mortgage could help
With spiralling house prices and deposits, getting a foot on the housing ladder might seem an impossible task.
Stricter lending criteria brought in following the introduction of the Mortgage Market Review has also toughened up affordability requirements for many prospective homebuyers.
Some professionals can experience difficulty in getting a mortgage because lenders are unfamiliar with the complexities of their remuneration structure and take a “computer says no” approach to affordability assessment.
However, help is at hand – if you have got the right job and qualifications. A number of lenders offer special packages for qualified professionals such as doctors, lawyers and teachers, which may offer better perks than the standard mortgage.
Professional mortgages are aimed at borrowers whose qualifications, predictable career progression and future earnings potential make them an attractive proposition to lenders that see them as less of a risk.
As lenders view these borrowers more favourably they are more likely to look at individual circumstances and provide greater flexibility with underwriting, which standard applicants don’t necessarily get. Some lenders will even lend to borrowers up to five times their annual salary.
Different lenders will tend to have their own list of professions that they will consider for a professional mortgage.
David Hollingworth, associate director at London & Country Mortgages, said: “From the lender’s perspective it’s a good idea to try and court borrowers that are professionals as their income progression is typically very strong and are therefore deemed a lower risk.”
He said that firms in the professional mortgage market space have specialist knowledge and a better understanding of how the income of people in certain professions may be erratic.
“Lenders offering professional mortgages are able to show more flexibility compared to some high street lenders that might have a tick box mentality as they take an individualised approach which assesses the merits of the case and how they make their income.
“For example, barristers may be working but they may not see any income come through until the case is completed, so a professional mortgage lender may be more willing to look at their situation.”
Martin Fleming, managing director at Scottish Widows Bank, said that as professionals were considered less of a risk they were offered rates 0.1% lower than on the standard product range.
“Official government statistics show that professionals demonstrate faster income progression and higher income over their lifetime than the general population.
“The impairment levels we see on our book are much lower than the general market because these individuals have very low unemployment rates.
“More also work past the state pension age as well, which is one of the reasons why we have extended lending age limits.”
Teachers Building Society
Teachers Building Society was founded in 1966 with the express aim of helping those that nurture young minds across the country get a foot on the property ladder.
The society’s knowledge of the teaching sector means that it understands the unique circumstances faced by teachers in the job market and is able to tailor mortgages to meet their needs.
Its in-house underwriters assess each case on an individual basis through bespoke underwriting which is designed around the working hours, pay system and employment contracts of teachers.
The firm caters to teachers at all stages of their career – from newly-qualified teachers looking to get onto the housing ladder, through to those nearer the end of their career who might be thinking of remortgaging.
James Bawa, chief executive at Teachers Building Society, said: “For us it is the story behind the borrower that is important – we do not see a small deposit or stretched affordability quite in the same light as other lenders. For example, we can see that a science teacher will have a good career and a lot of schools chasing after them.”
Teachers offers a number of discounts which at the end of the term change to its standard variable rate for the remainder of the mortgage, which is currently 4.99%.
For example, first-time buyers and newly-qualified teachers can get a mortgage with just a 5% deposit at a variable rate of 3.99% for three years, which is discounted by 1.00%. It comes with an arrangement fee of £899 and an application fee of £99.
For a newly-qualified teacher the standard 12-month first post is considered equal to a permanent position and they can move in even before they start their very first teaching job.
Home movers with a 5% deposit can get a rate of 3.99% on a three-year variable rate mortgage.
At the other end of the spectrum, those with a 40% deposit can get a two-year variable rate mortgage at 1.25% – a discount of 3.74% on the standard variable rate. Both also have an arrangement fee of £899 and an application fee of £99.
Bawa said: “A large number of first-time buyers come to us looking get on the property ladder and this is where we are particularly strong – it has been our raison d’être for 50 years.
“A lot of teachers we help have small deposits and we will go up to income multiples of five times if we see there are good career paths in front of newly-qualified teachers.
“We have even released the funds to teachers before they have started their new position as we find there are a number of them that will move around the country for their post.”
Saffron Building Society
Many professionals starting out on low salaries will know that their incomes are likely to rise over the years and will be quite confident of taking out a substantial mortgage.
One lender catering to borrowers such as these is Saffron Building Society. Its professional mortgage products have been designed with qualified professionals such as doctors, lawyers, accountants or veterinarians in mind.
At Saffron, each loan is individually assessed by a professional underwriter who takes into consideration the applicant’s qualifications, past and future employment prospects as well as their earning potential.
The revert rate for those taking out a professional mortgage is lower than with other Saffron products, therefore allowing higher loan amounts.
The society gives borrowers a discount on its fixed and variable rate products. Once this period ends, customers who have taken out a professional mortgage will still enjoy a 1% discount off the firm’s standard variable rate, which is currently 5.39%.
Its variable rates range from 3.99% for borrowers with a 10% deposit to 3.19% for those with a 30% deposit, reverting to 4.39% once the five-year term ends.
Saffron’s fixed rate mortgages start at 4.07% for those with a 10% deposit, going down to 3.27% for borrowers with a 30% deposit.
Anita Arch, head of mortgage sales at Saffron Building Society, said: “We are aiming at people in a career and a profession rather than a job – those who have got a future mapped out.
“The main difference between our professional mortgages and our other products is that the revert rate is lower, which allows higher affordability. This is because you have to base your affordability model on the revert rate plus 2%, so it allows us to lend more to somebody in a profession.
“One of the other advantages of our discount products is that borrowers can also repay capital and benefit from a reduced mortgage rate if their loan moves into a lower loan-to-value band, with no additional charge.
“For example, if you take out a discounted product for five years with an 85% loan-to-value the interest rate is 3.79%. Making a capital repayment which takes you down to an 80% loan-to-value will reduce your interest rate to 3.69%.
“We also consider bankers, mortgage brokers and other professions on an individual basis, but they must earn over £100,000 and hold an industry recognised qualification.”
Scottish Widows
Scottish Widows offers fixed and variable rate mortgages for professionals, or the mortgage can be taken as a combination of both.
The bank caters for fully-qualified, practicing and registered accountants, actuaries, barristers, dentists, engineers, medical doctors, optometrists, pharmacists, solicitors, teachers and vets. It will also consider trainee accountants, actuaries and solicitors.
It will lend to borrowers with a 10% deposit and its range of professional mortgages includes two and three-year fixes and two-year trackers with a variety of fees.
There is also a separate product range for those borrowing over £1 million and as it does not sell directly applicants must go through brokers.
Its two-year fixed rate mortgages start at a rate of 2.99% with a £999 fee for borrowers with a 10% deposit.
For borrowers with a deposit of 40%, the two-year fix is available at a rate of 1.54% and a £1,499 fee.
Those looking to take out a three-year fix can get a rate of 3.59% with a 10% deposit and no fee.
With a 40% deposit, the three-year fix has an interest rate of 1.94% and a fee of £1,499.
Martin Fleming, managing director at Scottish Widows Bank, said: “We recognise how people in professions may not receive a regular income and how their contracts work.
“The real advantage for professionals when they take a mortgage out with us is our understanding of what they do and the ability to underwrite them quickly and efficiently.”
He cited the example of a barrister who had seen his credit score drop because he was staying in rented accommodation after selling his house.
“A barrister who recently came to us could have been turned down by some lenders with automated systems because his credit score was too low.
“Because we look at the individual circumstances of the borrower and understand how his income stream works we were able to approve it.”
As with other professional mortgages, applicants are assessed individually to help determine their circumstances.
It offers increased flexibility through a variety of features including the offset facility for borrowers that choose a variable or discounted rate.
The offset facility allows borrowers to reduce the term of their mortgage or their monthly payments, which Scottish Widows says could allow them to pay off your mortgage sooner and save thousands of pounds in interest.
Funds are held in a savings account and rather than receiving interest, customers get the benefit offset against their mortgage. In practice this means they won’t be charged any interest.
Fleming said: “The offset facility has proved very popular, with 80% of customers selecting it. “Essentially if you have got a mortgage of £200,000 and savings of £50,000, by putting them into an offset savings account you only pay interest on £150,000.
“In effect you are actually earning interest at the same rate as you are paying on your mortgage. “Given where interest rates are today it is more attractive than ever as it is very difficult to find a savings account which pays anywhere near what you are paying on your mortgage.”
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Case study: Taking out a professional mortgage
Dawn Carson and her husband William took out a mortgage for their first home with Teachers Building Society in 2009.
She is a primary school teacher and got in contact with the society after hearing about its positive reputation from other teachers.
When they first took out a mortgage with Teachers Building Society it was one of the only providers offering the size of loan needed to help them secure their first home.
She says: “They looked at the bigger picture and took into account that I was a professional in a stable career, so they knew I was a safe bet.
“As a busy primary school teacher and mum, I appreciate the speed and simplicity of it all. The society has the feeling of a small, family-like business and I’ve often spoken to the same person throughout my six years with them.
“A lot of banks and building societies now rely on automated services, so I really like the fact that Teachers treat their customers as individuals and are able to offer that personal touch.”
Since taking out the mortgage they have had two children and completed two house extensions to include an additional bedroom and playroom.
Dawn says: “On one of the occasions we contacted Teachers I was approaching maternity leave and working on a fixed-term contract, so I don’t believe other lenders would have considered our application at that point in time.
“However, Teachers looked at our case on an individual basis and was still able to help. They didn’t just rely on a computer-generated response.
“Even though we didn’t look great on paper, they gave us the extra money, which I don’t think we would have got from any of the bigger banks.”
“High street lenders are not necessarily the best option. With the current housing crisis, I’d definitely recommend Teachers Building Society to other teachers to help them get on the property ladder.”
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Is it the right deal for you?
Professional mortgages offered some pretty eye-watering deals 10 years ago, with some lenders offering high income multiples and 110% loan-to-values.
However, since the credit crunch and the introduction of the Mortgage Market Review, lenders have had to review affordability and tighten their criteria for borrowers.
Hollingworth said: “A professional might find a traditional high street lender is not prepared to take their situation into account, but someone with a more individualised approach will.
“Professional mortgages are not necessarily going to have market leading rates. Some rates are pretty competitive, but that doesn’t mean they will beat the best on the high street.
“They come in when professionals are perhaps struggling to find a lender and they need one to look more imaginatively at how their income is made up.
“The number of lenders offering professional mortgages is still relatively limited, which is why it is important to consider the whole market, but they still have a fairly important part to play.
