Home Loans for Self-Employed Doctors: A Proposed Change to Specialist Fees

The Federal Government is currently considering reforms aimed at improving the affordability of private specialist medical care.

That has naturally raised questions among specialists about what possible fee controls could mean for private practice income, particularly for doctors who are starting a practice, expanding their private workload or planning a major financial decision such as buying a home.

The important distinction is that a policy proposal may affect what a practice earns in the future. It does not change what a lender can use as income today.

For specialists operating their own practice, this is particularly important because home loans for self-employed doctors are assessed using income the lender can verify under its current credit policy, not what the practice may earn under a future government policy or business forecast.

What is the Government actually considering?

At the time of writing, no new specialist fee policy has been finalised.

The Government's consultation is considering several possible ways to address what it describes as excessive specialist fees. The options include:

• Publishing a point at which a fee may be considered excessive.

• Identifying providers whose fees appear unusually high compared with their peers.

• Strengthening fee disclosure and informed financial consent.

• Sending providers information about concerns with their billing practices.

• Referring potentially excessive billing for peer assessment.

• Reviewing a provider's average billing across a financial year.

• Introducing maximum allowable fees for particular Medicare items.

• Providing incentives for specialists who bulk bill or charge lower out-of-pocket fees.

These are options being considered, not policies that have already been adopted.

There is currently no final definition of an excessive fee, confirmed commencement date, completed regulatory model or settled approach to exceptions.

A lender cannot assess a consultation paper

A lender is not assessing what a specialist might earn under a possible future government policy. It is assessing whether the borrower can afford the proposed loan under the lender's current credit policy.

When assessing home loans for self-employed doctors, lenders will generally look at the financial evidence available from the practice. Depending on the lender and the circumstances, this may include tax returns, financial statements, BAS, business bank statements, notices of assessment and information from the accountant.

This is where lender selection becomes important. Different lenders can have very different requirements around trading history, how self-employed income is calculated and whether more recent business performance can be considered.

For a specialist employed by a hospital or another practice, the lender may review:

• Base salary.

• Recent payslips.

• Employment conditions.

• Overtime.

• On-call earnings.

• Allowances.

• Other regular income.

The lender will then apply its own rules to decide which parts of that income are acceptable and how much can be used.

For a specialist operating a private practice, the lender may request:

• Personal and business tax returns.

• Financial statements.

• Notices of assessment.

• Business Activity Statements.

• Business bank statements.

• An accountant's letter.

• Evidence of the business's current turnover and expenses.

The exact documents and calculation will vary between lenders.

Some lenders may consider a shorter trading history, recent BAS or an accountant's projection for a newer practice. That will only be available under specific lending policies and where the supporting evidence is strong enough.

A projection can help explain where the practice is heading. It does not mean the lender will automatically accept the full projected income.

Expected income is not always bankable income

When looking at a new or growing private practice, I separate the income into three different figures:

• Expected income: What the specialist believes the practice will earn once referrals, patient numbers and consulting hours reach their intended level.

• Actual business income: What the practice is currently billing and retaining after expenses.

• Lender-accepted income: The amount a particular lender is prepared to use after applying its credit policy and verification requirements.

Those figures can be very different.

A specialist may have strong demand, a growing waiting list and a realistic expectation that the practice will generate significant income.

Their accountant may also prepare a detailed projection supported by appointment capacity, referral sources and current billings.

However, where the practice has only been operating for a short period, some lenders may still use a lower figure, request more evidence or wait until the income has been demonstrated over a longer period.

A government proposal does not automatically increase or reduce lender-accepted income. Until there is a final policy and an actual financial effect on the practice, there is no new income figure for the lender to assess.

The biggest timing risk when starting private practice

For many specialists, the greatest borrowing risk is not the proposed fee reform itself.

It is the period between reducing secure employment income and establishing enough private practice history for a lender to recognise the new income.

Consider a specialist who currently works full-time in a hospital and plans to reduce those hours to expand their private practice.

The private practice may have excellent long-term potential. The specialist may have a strong referral network, clear patient demand and significant experience in their field.

From the lender's perspective, however, the specialist may have reduced a stable PAYG income while increasing their reliance on a newer self-employed income stream.

Their real earning potential may have improved, while their lender-assessed borrowing capacity temporarily falls. This is one of the biggest issues I see with home loans for self-employed doctors who are moving from hospital employment into private practice.

This can be particularly important where the specialist is also planning to:

• Buy or upgrade their home.

• Purchase practice premises.

• Enter into a commercial lease.

• Complete a practice fit-out.

• Employ administrative or clinical staff.

• Purchase equipment.

• Refinance existing debts.

• Reduce hospital hours.

• Change their business or ownership structure.

When several of these changes occur together, the order and timing of each decision can have a major effect on the lending result.

In some cases, the strongest home loan position may be available before the specialist reduces their employed hours.

In other cases, it may be better to wait until the practice has produced enough evidence for a lender to recognise the new income properly.

That is why borrowing capacity should be reviewed before major employment or business changes are made, rather than after they have already occurred.

What happens if specialist fee reform is introduced?

Even if the Government eventually introduces fee controls, the effect on private practice income is unlikely to be immediate or equal across every specialist.

A change to the maximum fee for a particular service would affect gross billings. It would not automatically produce the same reduction in net business income across every practice.

The eventual result could depend on:

• The services provided by the practice.

• The specialist's current fee structure.

• The number and complexity of patients.

• The proportion of hospital and consulting work.

• Practice overheads.

• Staffing costs.

• Room rental or commercial lease costs.

• Private health insurance arrangements.

• The proportion of privately billed and bulk-billed patients.

• Whether appointment volumes change.

• Whether new incentives are introduced.

• How the final policy treats exceptions and complex cases.

A specialist already charging well below any eventual intervention point may experience little or no direct effect.

Another practice may experience lower fees for certain services but partially offset that through increased patient demand, fewer cancelled appointments or government incentives.

A different practice may experience a genuine reduction in profitability.

Practices may also respond by changing their service mix, appointment structure, consulting hours, staffing arrangements or operating costs.

The actual result will only become clear once the final rules are known and the practice begins operating under them.

If income changes, that effect may eventually appear in the practice's BAS, financial statements, tax returns and bank statements.

Those are the documents that may later change how a lender assesses the income.

Planning around evidence rather than headlines

This does not mean specialists should ignore the consultation.

Someone preparing to start or expand a private practice should understand the possible reforms and consider whether the business remains viable under different fee, patient and income scenarios.

However, a doctor home loan strategy should begin with what a lender can verify now.

That includes understanding:

• The income currently available under lender policy.

• How the specialist earns that income.

• Which parts of the income are stable.

• Which parts are variable.

• What will happen if hospital hours are reduced.

• How much private practice history is available.

• What documents support current business performance.

• How the lender will treat projections and current BAS.

• How much cash needs to remain available for the practice.

• Whether the home purchase should occur before or after the business changes.

A conservative scenario should also be considered.

If the practice takes longer than expected to grow, fees are lower than forecast or operating costs are higher, the home loan still needs to remain manageable.

The practical takeaway

A proposed change to specialist fees is something to monitor.

It is not income.

It is not a completed financial year.

It is not a BAS.

It is not a figure a lender can simply enter into a borrowing capacity calculator.

For self-employed doctors and medical specialists, the starting point should be the income a lender can verify under today's policy.

Structure the home loan around the evidence available now, rather than an expected future result.

The strategy can then be reviewed if the Government finalises the reforms, lender policies change or the practice's actual income moves.

For specialists balancing private practice growth with a home purchase, the order in which those decisions are made can be just as important as the amount the practice may eventually earn.

General information only. Lending policies and income assessment methods vary between lenders and individual circumstances. Obtain independent legal, tax, accounting and financial advice before making decisions about a private practice or home loan.