Looking to Buy a House - Self Employed Mortgage

Panic Stations

Hi All,

I don't know if this has been covered before but I'm looking for some advice.

I've been self employed for the last year and within the next year or two I'd like to be in a position to buy a house with my other half.

We'd ideally like to buy in Dublin and both currently have a deposit of 50k saved between us and would like to buy a house within around 450k - 500k in South Dublin.

I just want to make sure that when I go to apply for a mortgage I have all my ducks in a row.

Currently the business is profitable and has very little overheads (It's only me in it and I work from home).

I'm curious to know what the banks will want to see when applying for a mortgage.

At the moment I take a very small wage out of the business and keep the majority of the cash in the business account. We're also paying 2k a month for our rented accommodation.

My questions is, what exactly will the bank be looking at when considering giving us a mortgage regarding my business?

Turnover?
Profit?
Take home Salary?
All of the above?

Any advice would be greatly appreciated.

Kevwoody

As far as I know, self employed people need 3 years audited accounts before a bank will look at them.

Also, 2 grand rent will have no bearing on the application.

Panic Stations

I was speaking with AIB and they said they would consider 2 years of accounts if the business was profitable and doing well.

They also said they wanted to see the potential amount of monthly repayments being saved or spent on rent to prove you're able to repay it.

lomb

Direct debit for monthly savings is also helpful.
Expect them to look for the revenue having paid the full preliminary tax. This allows them to clear your savings as true savings.

johnnyskeleton

My questions is, what exactly will the bank be looking at when considering giving us a mortgage regarding my business?

Turnover?
Profit?
Take home Salary?
All of the above?

Are you registered as self employed or is it a limited company that you pay yourself a wage from? If self employed your accountant will show your net income. Turnover, profit and take home salary are more related to how a limited company operates.

In any event, what the bank will be looking for is your total annual income. If self employed, this is the excess of income over expenses. If a business, this will be how much you pay yourself out of the business. I don't think they will consider the profits retained by the limited company as part of your annual income, but your accountant will advise on this.

It's generally very difficult to get a mortgage when youre self employed, not because the rules are necessarily harder, but more because the banks will apply the rules of paye employees to you as well, and will often assume the worst.

So if your income dips one year over another, they could look to take the lower figure of these (not all banks do, so make sure you go to a bank that takes the average over 3 years).

As others have suggested, it would be no harm now to draw more money and put it into a dedicated mortgage savings account. That way in 2 years time you will have a bigger deposit and will be able to show that you pay 2k in rent plus, for example, 2k per month in savings, which is what the bank will look at in order to stress test your income.

jlm29

I think it’s 3 years of accounts from your accountant, as above.
You should probably be showing your business’s ability to pay yourself a proper wage, so you should be drawing it, and saving it I would imagine. You should have separate accounts for business and personal use

Panic Stations

Panic Stations wrote: »

My questions is, what exactly will the bank be looking at when considering giving us a mortgage regarding my business?

Turnover?
Profit?
Take home Salary?
All of the above?

Any advice would be greatly appreciated.

Panic Stations wrote: »

I was speaking with AIB and they said they would consider 2 years of accounts if the business was profitable and doing well.

They also said they wanted to see the potential amount of monthly repayments being saved or spent on rent to prove you're able to repay it.

There you go then..?

Panic Stations

It's a limited company.

Just for reference we're looking to buy a house for 500k

We'll have a 50k deposit so will need to borrow 450k

3.5 of 450k = 129k

My partner earns 45k

So do I need to draw a salary of 84k or is it ok to draw a salary of 40k if the business is already making 84k+?

CPTM

Panic Stations wrote: »

It's a limited company.

Just for reference we're looking to buy a house for 500k

We'll have a 50k deposit so will need to borrow 450k

3.5 of 450k = 129k

My partner earns 45k

So do I need to draw a salary of 84k or is it ok to draw a salary of 40k if the business is already making 84k+?

I was like this almost exactly except I was only self employed for 18 months. KBC reviewed my business account for 18 months and then pay slips from full time employment before that. They got the average earnings for the 3 years. Their phone staff will tell you that you have to be self employed for 2 to 3 years but if you have good earnings and savings aside from that the branch staff will review the situation with you.

Are there any other people listed as directors or individuals who are able to draw income from the company? If not, you're like me and they took company earnings as personal earnings. They understood I was just drawing down 50% of total earnings to leave the other half in the company for pension/rainy day money.

It would be cleaner to drawdown 84k+, but in my experience it wasn't a requirement because I'm the only director/person on the payroll.

Like with anyone, they'll also want statements of any account which posted a large amount to your personal account. Credit cards, revolut, other current accounts which debited a large sum from your primary current account.

They'll want a letter from your accountant stating you're currently on top of all your taxes and have no outstanding debts(has your company any loans?).

Panic Stations

I'm the only one of the payroll for it and pretty much do what you did. Take a small bit out to cover my rent and personal expenses and leave the bulk of it in.

I'm the only named director so I'm the only one taking money out.

Plus there's no overheads or expenses.

Do they always take the average of 2-3 years?

CPTM

Panic Stations wrote: »

I'm the only one of the payroll for it and pretty much do what you did. Take a small bit out to cover my rent and personal expenses and leave the bulk of it in.

I'm the only named director so I'm the only one taking money out.

Plus there's no overheads or expenses.

Do they always take the average of 2-3 years?

I can't say always but in my case it was 3 years which brought down my borrowing capability a bit but luckily we were still ok. They basically treated any money I left in the company account as savings (keeping in mind approx. 45% of what's in the company would be paid to the taxman).

Eric Cartman

CPTM wrote: »

I can't say always but in my case it was 3 years which brought down my borrowing capability a bit but luckily we were still ok. They basically treated any money I left in the company account as savings (keeping in mind approx. 45% of what's in the company would be paid to the taxman).

better off leaving it in the company instead of moving it out to a savings account and paying that so. id rather they wrote down '100k in savings' rather than '55k in savings' and see a big lump gone to revenue.

jlm29

I think if you’re drawing a salary from a limited company, then they’re going to work out your affordability with your two salaries the same way they would if ye were both employed by someone else. So 3.5 times your salaries is the max you can borrow, minus any loans etc. Because you are both technically paye workers earning a salary. That’s how it was for us anyhow a few years ago, if I remember rightly. So I would think you would need to be drawing an adequate salary. But that said, we didn’t go to other banks, we just went to AIB because we bank there anyhow. Maybe different banks have different policies.

CPTM

Eric Cartman wrote: »

better off leaving it in the company instead of moving it out to a savings account and paying that so. id rather they wrote down '100k in savings' rather than '55k in savings' and see a big lump gone to revenue.

I think their front office wrote down the 55k in savings despite the 100k amount in the business account. The tax payable was noted in some way anyways. It did give me some kudos though in showing I was 'financially responsible', but whatever that was worth I don't know.

I was glad I left it there though because I was able to move a huge chunk of it into a pension fund tax free at the end of the year. Pity it was a month or so before C19 hit which completely obliterated it but whatever!

CPTM

jlm29 wrote: »

I think if you’re drawing a salary from a limited company, then they’re going to work out your affordability with your two salaries the same way they would if ye were both employed by someone else. So 3.5 times your salaries is the max you can borrow, minus any loans etc. Because you are both technically paye workers earning a salary. That’s how it was for us anyhow a few years ago, if I remember rightly. So I would think you would need to be drawing an adequate salary. But that said, we didn’t go to other banks, we just went to AIB because we bank there anyhow. Maybe different banks have different policies.

Yes I think each bank are a bit different. With KBC, as soon as they heard I was the sole director, they treated all earnings by the company as personal income.

Panic Stations

Yeah, I'm currently banking with AIB (Both business and personal) no big loans or long term debt and healthy savings accounts.

I might give them a call this week to see if there is someone I can chat to about this in more detail.