Mortgage for company director/self-employed

rat_race

Hi,

I am a software engineer contractor, who operates under a simple one-man company simply because it's the easiest and normal way to "contract". So I am a company director, and pay myself a salary through my company.

I would now like to apply for a mortgage. But, I have only been doing this for over a year and I believe AIB (at least) looks for 3 years of accounts/tax compliancy, etc., before offering a mortgage to someone like me (basically self-employed). This sucks because I do not want to wait two more years. Before that I worked in various perm. jobs.

I previously had mortgage approval with AIB when I was a permanent employee. That's about two years ago. I didn't buy though.

Now, what's annoying about this is that I could easily go permanent tomorrow, if I wanted -- but I choose to contract intentionally. I have quite a lot of savings -- probably 2-3 times more than most first time buyers, in proportion to the value of the house they want to buy (PM me if you'd like to know how much, if it matters). I'd like to spend about 360k max on a house. I've got pefect credit history, and have always been saving, etc.

I'm wondering where I could get a mortgage without giving up the contracting or waiting for two more years? I'd rather some advice to help my case before appraching a bank. Any advice is greatly appreciated.

One option is to go permanent with my main client (the offer is there), get the mortgage, then go contracting again. But it seems so pointless...


Regards,
rat_race

srsly78

It's more like 5 years of accounts they want to see I have heard. Yeah it sucks, but you have to deal with it. As an IT contractor mobility is very important, so renting is not so bad!! 1 year is nothing, your accounts probably aren't even filed, so there is nothing whatsoever to show! My bonus etc is delayed by almost 9 months, because of the form11 filing date etc.

Do remember also that there is a feast/famine aspect to contracting, you can have an amazing year followed by a not so amazing year. And you probably can't get the dole if you are class S. So even tho business is good we are classed as high-risk.

On the plus side you get paid so much anyway you might not need a mortgage. What is really annoying is that they won't give you a mortgage for a small amount with a small term - because there is no profit in it for them.

It gets even better, even if you have 50 grand in your company account they won't give you a credit card without a personal guarantee...

rat_race

srsly78 wrote: »

It's more like 5 years of accounts they want to see I have heard. Yeah it sucks, but you have to deal with it. As an IT contractor mobility is very important, so renting is not so bad!! 1 year is nothing, your accounts probably aren't even filed, so there is nothing whatsoever to show! My bonus etc is delayed by almost 9 months, because of the form11 filing date etc.

Do remember also that there is a feast/famine aspect to contracting, you can have an amazing year followed by a not so amazing year. And you probably can't get the dole if you are class S. So even tho business is good we are classed as high-risk.

On the plus side you get paid so much anyway you might not need a mortgage. What is really annoying is that they won't give you a mortgage for a small amount with a small term - because there is no profit in it for them.

It gets even better, even if you have 50 grand in your company account they won't give you a credit card without a personal guarantee...

So there's no way around this? What about with a guarantee or something like that? The parents might fly with that, somewhat...Bah...

Renting is not so bad, but, dead money...I estimate that my monthly rent at the moment is less than my mortgage repayments if I bought the apartment at market price.

I hear you on the feast/famine thing, but I'm 28, with a good related degree, reputation, skills, etc...I can't see myself ever not getting a job that would allow me to pay my mortgage even if ab ideal job was not obtainable.

Also, I don't earn *that* much after tax, accounting fees, rent & living...certinaly not enough to buy a house in cash anytime soon. Maybe I'm doing it wrong!

Oh, also, you're a contractor -- you get a bonus?

srsly78

As a self-employed person controlling a company you are in full control of your salary and your bonus and your pension. All you gotta do is make enough sales...

Renting is most certainly not dead money for a contractor, willingness to travel is very important. The best part is you can get company to pay the rent in certain situations (very complex area tho).

rat_race

srsly78 wrote: »

As a self-employed person controlling a company you are in full control of your salary and your bonus and your pension. All you gotta do is make enough sales...

Well I don't want to turn this into a thread about bonuses ...but, what advantage is there paying yourself a bonus vs. an extra salary amount? I just vary my salary from month to month depending on what is in the company's bank account.

Maybe you're salary is static for some reason, so you'd rather not do that, and hence go the bonus route.

There's no tax benefits to a bonus vs. salary, as far as I know

srsly78

Varying your salary is just hassle. I pay myself the minimum amount, then disburse whatever is leftover as a bonus. You can't keep money in the company without suffering punitive corp tax on undistributed income.

There is no tax benefit you are correct. Pensions however are a different matter, and should be looked at if you are well into the higher tax bracket. Note however that the "wind up within 2 years" tax dodge does not apply to prop directors!

It's impossible to administer PAYE correctly as a prop director... You cannot claim various tax credits through the normal system, you can only claim on the Form 11 the next year. So invariably you end up overpaying slightly and getting a refund the next year.

rat_race

srsly78 wrote: »

Varying your salary is just hassle. I pay myself the minimum amount, then disburse whatever is leftover as a bonus. You can't keep money in the company without suffering punitive corp tax on undistributed income.

There is no tax benefit you are correct. Pensions however are a different matter, and should be looked at if you are well into the higher tax bracket. Note however that the "wind up within 2 years" tax dodge does not apply to prop directors!

It's impossible to administer PAYE correctly as a prop director... You cannot claim various tax credits through the normal system, you can only claim on the Form 11 the next year. So invariably you end up overpaying slightly and getting a refund the next year.

Well I tell my accountant "I want a salary of XYZ this month" every 2-3 months, and he does all the taxes/creates a payslip. As long as there's no profits at the year end, you won't need to pay corp. tax though. My first year end is coming soon, so need to make sure the business account is empty (I think) to avoid corp. tax.

I understand what you're saying about the form 11, however, I don't really have any tax credits to administer on that -- any tips welcome As far as I remember, there was nothing on my last one...(couple of months ago)

srsly78

The rental tax credit (dead money lol) and medical expenses (feckin dental crowns) are what I put on form 11. Really annoying that I can't administer these like a normal person, but instead have to claim them the year after. Is only worth e200-e300 anyway.

Regarding salary etc, do you pay your expenses from your personal account (then reimburse) or do you use a company card? If a company card then you need to leave some money in the kitty to cover them. It's easier to pay from the company tbh, it all shows up on the bank statement and there is no need to reimburse then.

Always makes things easier to seperate personal and business expenditure. One last tip, don't use a business bank account - they are a complete ripoff. The taxman has no problem with you using a second personal account for your company, but the banks do... (because then they can't rip you off as much!) Note you must have the permission of the other director of course... Often a second signature will be needed, so to avoid annoying your buddy it can help to get them to sign a blanket waiver: "I Joe Bloggs, director of XYZ Widgets ltd hereby delegate all responsibility for company banking to Fred Bloggs etc. Signed .... Joe Bloggs". Note that your other director DOES have legal responsibility for everything so you should give them full transparency. My co-director has full access to all company records which are stored in a dropbox shared folder. Paperless office naturally...

Don't be fooled by the 2 year fee free period, once that ends you will be crucified. Well... you could take advantage of it, and then switch to another bank after 2 years, repeat ad infinitum... But switching banks is really annoying :pac:

Finally you are wrong about the company account needing to be empty. Your profit needs to be zero (to avoid corp tax), which is not the same thing as an empty account! It comes down to cashflow etc. On Dec 31st you will still be waiting for the December invoice to be actually paid!

rat_race

srsly78 wrote: »

The rental tax credit (dead money lol) and medical expenses (feckin dental crowns) are what I put on form 11. Really annoying that I can't administer these like a normal person, but instead have to claim them the year after. Is only worth e200-e300 anyway.

Regarding salary etc, do you pay your expenses from your personal account (then reimburse) or do you use a company card? If a company card then you need to leave some money in the kitty to cover them. It's easier to pay from the company tbh, it all shows up on the bank statement and there is no need to reimburse then.

Always makes things easier to seperate personal and business expenditure. One last tip, don't use a business bank account - they are a complete ripoff. The taxman has no problem with you using a second personal account for your company, but the banks do... (because then they can't rip you off as much!) Note you must have the permission of the other director of course... Often a second signature will be needed, so to avoid annoying your buddy it can help to get them to sign a blanket waiver: "I Joe Bloggs, director of XYZ Widgets ltd hereby delegate all responsibility for company banking to Fred Bloggs etc. Signed .... Joe Bloggs". Note that your other director DOES have legal responsibility for everything so you should give them full transparency. My co-director has full access to all company records which are stored in a dropbox shared folder. Paperless office naturally...

Don't be fooled by the 2 year fee free period, once that ends you will be crucified. Well... you could take advantage of it, and then switch to another bank after 2 years, repeat ad infinitum... But switching banks is really annoying :pac:

Finally you are wrong about the company account needing to be empty. Your profit needs to be zero (to avoid corp tax), which is not the same thing as an empty account! It comes down to cashflow etc. On Dec 31st you will still be waiting for the December invoice to be actually paid!

That's great advice on not using a "business" bank account. I'm still in the two free years period. I really didn't think it would be possible to use a personal account, legally. So I will look into that when the time comes...

Regarding my expenses: pretty much all of them come from my personal account and I reimburse myself. I fill out a monthly expenses spreadsheet. I don't have a company CC, didn't see the need for one...

Thanks for the tips.

nlgbbbblth

These might help

1 - Quarterly management accounts for the company [annual accounts are invariably historic]
2 - Projections for next 12 months
3 - Some form of comfort re ongoing contracts and the value of same
4 - List of work in progress

You need to convince the lender that you're an acceptable risk. Your savings record should stand to you.

On the other points:
If a bank advances facilities [overdraft, loan, business credit card] to a limited company then it is prudent to take security. A personal guarantee from the director / directors is usually obtained for facilities up to €50,000. The bank needs recourse to a key principal if the company stops trading / is liquidated etc.

A personal account is called that for a reason.
If a company approached a bank and asked to the house the account on a personal product then they should be shown the door.
The bank is in the business of making money, providing a service etc and is entitled to charge for same.
Do any of you guys work for free?

rat_race

Hi all -- I called into my local branch, and the results were much more optimistic. They basically gave me verbal mortgage approval with very little hassle, so far. I still need to get other details for them, but I am not worried.

I just wanted to write back to tell anyone considering a mortgage to call into their local branch and ask. For me, it was a totally different experience than when I called the bank mortgages dept on the advertised/national number.

Also, they've changed their tune a bit recently. They're not as scared as they were 2-3 years ago. Celtic tiger spending here we come!

19driver83

rat_race wrote: »

Hi all -- I called into my local branch, and the results were much more optimistic. They basically gave me verbal mortgage approval with very little hassle, so far. I still need to get other details for them, but I am not worried.

I just wanted to write back to tell anyone considering a mortgage to call into their local branch and ask. For me, it was a totally different experience than when I called the bank mortgages dept on the advertised/national number.

Also, they've changed their tune a bit recently. They're not as scared as they were 2-3 years ago. Celtic tiger spending here we come!

I am a company director aswel in a one man company. I went into the bank yesterday and asked about a mortgage for a self build. I was shocked at the amount that they would give me. They treat a company director a lot different to a paye worker although I was never told that when I spoke to people over the phone on mortgages before.

I have only one set of accounts and he said it wouldn't be a problem.

They assess your gross as being what you paid yourself including bonuses, your company's profit is added to your gross plus any pension contribution made.

KDon

Hi all, I'm going through very similar situation at the moment: self employed,just took over a quite successful business, but have no previous years reports so they suggested I should bring my six months profit and loss statement and future years projections have been said that if I provide this i should be ok. So my saving look great, Found a house, put in a deposit, and here they are telling me to come back in two years..... So rat_race Did you find a solution after all? Anyone knows what can be possibly done? This house won't be here in two years

rat_race

Did you call into your local branch? Mine told me they would give me a mortgage, but I haven't actually one through with it yet.

KDon

rat_race wrote: »

Did you call into your local branch? Mine told me they would give me a mortgage, but I haven't actually one through with it yet.

I did. First I inquired in February; they said "well you're just next door so we know you're doing ok. Come back in six months, if figures look ok then no problem" so I was happy and relaxed that everything's going well, and now when I found the house I went in with a bunch of documentation: profit and loss statement for six months; projections; all my hosbands' required docs as a paye; and they said "sorry we can't actually build a case on this to send it forward"

rat_race

What did they say the main reason was? It's all about risk with them, and so they must think their is some risk with you.

Couldn't your business fail, leaving you broke?

KDon

rat_race wrote: »

What did they say the main reason was? It's all about risk with them, and so they must think their is some risk with you.

Couldn't your business fail, leaving you broke?

No, that's not it, my bank contact seems really eager to help me out but there are certain requirments like a, b, c to provide ; and if you're missing one (like pasr years reports) then you're stuck.
However, your first post dates to dec 2013, so you're in business now a year and a half, so you already have one year's report , maybe that's what they're counting on.
Hope it goes well for you. And I'm not giving up yet.....although I don't know what else to do....

KDon

rat_race wrote: »

What did they say the main reason was? It's all about risk with them, and so they must think their is some risk with you.

Couldn't your business fail, leaving you broke?

No, that's not it, my bank contact seems really eager to help me out but there are certain requirments like a, b, c to provide ; and if you're missing one (like pasr years reports) then you're stuck.
However, your first post dates to dec 2013, so you're in business now a year and a half, so you already have one year's report , maybe that's what they're counting on.
Hope it goes well for you. And I'm not giving up yet.....although I don't know what else to do....

rat_race

Yes, I have one full year's accounts now, which was a requirement...but a generous one. It's usually two or three.