A mortgage when you are self-employed: what lenders need

Being self-employed does not change the rules. A lender can still lend you 4 times your income as a first-time buyer, or 3.5 times as a mover, and 90% of the price. What changes is the proof. An employee shows three payslips. You show two to three years of accounts and tax returns. This guide sets out what lenders ask for, how they read it, and what helps.

The same limits, more paperwork

The Central Bank rules apply to everyone. The income limit uses your gross income. For a self-employed person that means your net profit before tax, or your salary and dividends if you run a company. The lender decides which figure to use, and over what period.

The difference from an employee is trust in the number. A payslip comes from an employer. Your accounts come from you and your accountant. So the lender asks for more, and reads it harder.

What you send

Plus the usual items: photo ID, proof of address, savings statements, and statements for any loans. The documents checklist has the full list. A company director also sends the company's accounts and a statement of salary and dividends drawn.

How lenders read the figures

Most lenders average the last two or three years. If the figures are €50,000, €58,000 and €66,000, a lender may use €58,000. Some use the latest year if the trend is rising and steady. A fall in the latest year usually means the lender uses the lower figure.

Lenders add back some costs. Depreciation, which is the paper cost of wearing out equipment, is often added back to profit. Pension contributions sometimes are. A one-off cost, with a note from your accountant, may be too. Ask the accountant to flag these in the letter.

Lenders also look for:

• The same trade for several years, even if you were employed in it before going self-employed.
• Profit drawn as income, not left in the company. Money left in the company is not income unless the lender agrees to count it.
• Tax paid on time. A payment plan with Revenue is a red flag.
• Personal and business accounts kept separate.

A worked example

Maria runs a small design business. Her net profit for the last three years was €48,000, €55,000 and €62,000. Her accountant signs the accounts and writes a letter. Her Form 11 returns and notices of assessment match.

A lender averages the three years to €55,000. As a first-time buyer, 4 times that is €220,000. With a €30,000 deposit she can look at homes up to about €250,000, less the costs of buying. Had the lender used her latest year, the limit would be €248,000. Which figure a lender uses is its own call, which is why one lender may say yes where another says less. The mortgage calculator shows both.

Contractors

A contractor sells time by the day, often through a limited company or an umbrella company. Lenders look at:

• Your day rate and the days worked in the year.
• How long you have been contracting, and the gaps between contracts.
• Whether the same client keeps renewing.
• Whether you draw a salary from your company, or leave profit in it.

Some lenders treat a contractor with two or more years in the same field much like an employee, using the day rate times the working days. Others treat you as self-employed and average the accounts. A broker can tell you which is which.

In business under two years

Under two years is hard. Most lenders want two full years of accounts. A few take one year where you did the same work as an employee just before, with a strong order book. If you have under a year, most lenders say wait. Use the time to build the savings record and get the second year's accounts done early.

The accountant's letter

Many lenders have a form for the accountant to fill in. It asks for net profit and drawings for each year, the trend, and whether the business is sound. Ask the accountant to be plain and to explain any one-off item. A short, clear letter saves the person reading your file at the lender a question, and a question costs a week.

Which lenders take self-employed income

All of the main lenders lend to self-employed people. They differ in how they average, what they add back, and how many years they want. The broker-only lenders, which you reach through a broker rather than a branch, include some that say they take cases a bank has turned down. None of them is better or worse for you in advance. It depends on your figures and theirs.

A broker, also called a mortgage advisor (on the Central Bank's register), places self-employed cases every week and knows which lender reads accounts your way. Most brokers are paid by the lender. Some charge a fee, which they must put in writing before you engage them. See the mortgage advisor page and broker or bank.

What helps before you apply

• Get the latest year's accounts finished early. A lender in March wants last year's figures, not the year before.
• File the Form 11 and pay the tax before you apply.
• Draw a steady salary from the company each month rather than lump sums.
• Keep business and personal accounts separate.
• Clear the credit card and check your credit record.
• Keep six clean months of personal statements.

Where this leaves you

Put your average income and the price into the mortgage calculator to see the loan the rules allow and the repayment. Get the accounts, returns and tax clearance together, and the accountant's letter written. The first-time buyer journey shows the rest, and get quotes finds a solicitor when you have a home in mind.