Self-employed mortgages in Ireland: what lenders ask for

What follows describes how Irish lenders generally assess self-employed income. It is not advice on borrowing, and individual lender policies vary.

The rules are the same for everyone

The Central Bank of Ireland sets mortgage measures that cap what any regulated lender can lend, using two limits. They apply to employees and self-employed borrowers alike.

Loan to income, which caps borrowing as a multiple of gross income, meaning income before tax and expenses:

• First-time buyers: up to 4 times gross annual income.

• Second and subsequent buyers: up to 3.5 times.

• Buy-to-let: no loan to income limit applies, only the deposit requirement below.

Loan to value, which sets the minimum deposit:

• First-time and subsequent buyers of a home: maximum 90%, so a 10% deposit.

• Buy-to-let: maximum 70%, so a 30% deposit.

Lenders can exceed these limits for a share of their annual lending. The Central Bank calls these allowances and the market calls them exceptions. They are capped at 15% of first-time buyer lending, 15% of second and subsequent buyer lending, and 10% of buy-to-let lending, and they are discretionary.

Where self-employment changes things

An employee proves income with payslips and an employment detail summary, which a lender can verify in minutes. A self-employed applicant proves it with accounts and tax filings covering several years. Lenders read those looking for income stable enough to support a loan running 30 years or more.

What lenders ask for varies between them, and this list is representative rather than universal:

• Two to three years of certified or audited accounts, prepared by an accountant.

• Your Form 11 tax returns for the same period.

• Revenue Notices of Assessment, confirming what you declared.

• Confirmation that your tax affairs are up to date, sometimes as a tax clearance certificate.

• Recent business and personal bank statements, often six months.

• An accountant's letter confirming the figures and sometimes commenting on how the business is trading now.

Each lender sets its own policy on how many years it wants and how it treats a shorter trading history, and there is no standard position across the market.

Declared profit is the figure lenders use

Good tax planning reduces your declared profit. Mortgage lending is based on your declared profit. The two run in opposite directions, and the lending side has a two to three year lookback.

Claiming every allowable expense is normal practice. It also lowers the figure a lender multiplies by 4 or 3.5. Declared profit of €35,000 rather than €45,000 moves a first-time buyer's ceiling by €40,000, which is a different house.

The timing is the part people miss. The accounts you file this year are the ones a lender will read in two or three years, which is why this is a question for your accountant well before it is a question for a lender.

How lenders read the income

The figure a lender uses is rarely the top line of your invoices.

For a sole trader, the starting point is net profit as declared, meaning what is left once the costs of running the business have come off. Lenders may average two or three years rather than taking the most recent, which cuts both ways: a strong final year gets diluted, and a weak one gets softened. Where profit is falling year on year, lenders commonly take the lowest figure.

For a director of a limited company, treatment varies more. Some lenders count salary and dividends drawn. Others look at the company's retained profits too, taking the view that a controlling director can access them. The same set of figures can produce materially different outcomes at different lenders.

Add-backs sometimes apply. Non-cash items such as depreciation, or a one-off exceptional cost, may be added back to profit at the lender's discretion, and what each lender allows differs.

Help to Buy and tax compliance

First-time buyers of new builds may be able to claim the Help to Buy incentive towards a deposit. The condition that catches self-employed applicants is tax compliance: returns filed and liabilities paid for the relevant years.

A late Form 11 nobody has thought about in a while is a routine problem here, and clearing it takes time that is hard to find mid-purchase.

Where these applications commonly stall

The pattern brokers and lenders describe is rarely about the numbers themselves.

• Late returns. They surface in exactly the wrong place, and they are visible in the filings a lender reads.

• Mixed personal and business banking. It makes an underwriter's job harder, and a harder file is a slower one.

• Declared profit that does not support the borrowing. This is the one with the longest lead time, because it is set by accounts already filed.

• Missing paperwork. Applications stall here more often than on affordability.

• Assumptions about how many years are needed. The requirement is not standardised, so it differs by lender.

Insurance for self-employed people and sole traders in Ireland

Insify offers business insurance for self-employed people and sole traders in Ireland:

• Public liability insurance is for claims that your work injured someone or damaged their property, starting at €7.55 per month including taxes.

• Professional indemnity insurance is for claims that your advice or your service cost a client money.

You arrange cover online and can share proof of it with a client who asks. Terms, conditions and underwriting criteria may apply.

Insify is an insurance intermediary. This article is general information about how Irish lenders assess self-employed income. It is not tax, legal or financial advice, and it is not a recommendation to take out any mortgage or other credit product. Lender policies differ and Central Bank measures change, so check the Central Bank page linked above and speak to a qualified mortgage adviser, broker or accountant about your own position.