Can Contractors Get Mortgages?
A question we commonly hear from candidates is “can contractors get mortgages?” There is a widespread misconception that only PAYE employees are eligible for mortgages in Ireland. This myth is enough to discourage professionals from pursuing a potentially lucrative and rewarding career in contracting.
Table of Contents
- Can Contractors Get Mortgages in Ireland?
- What is a Mortgage?
- Mortgage Providers in Ireland
- Working Out Your Budget
- The Application Process
- 5 Tips for Contractors Applying for Mortgages
- Watch Our Webinar!
Can Contractors Get Mortgages in Ireland?
The good news is that Irish mortgage lenders are more than happy to work with contractors. In this article, we will offer an in-depth guide on mortgages for contractors. If you have any questions, we recommend that you seek out advice from our Contracts Team, your bank or your accountant.
What is a Mortgage?
A mortgage is a long-term loan that you can take out to buy property or land. Over the course of the mortgage, the borrower will make regular monthly repayments. Until the mortgage is repaid in full, the loan will be ‘secured’ against the value of your home. In other words, if you are unable to keep up your repayments the lender can repossess the property and sell it in order to get their money back.
Mortgage Providers in Ireland
You can apply for a mortgage directly from a bank or building society. Currently, there are ten mortgage lenders in Ireland. To compare the various offerings available on the market, you can engage the services of a qualified independent financial advisor or mortgage broker.
Working Out Your Budget
Before starting the application process for a mortgage, you will need to calculate your budget. To do this you will need to factor in how much of a deposit you can afford and your repayment capacity. Online mortgage calculators are a useful tool when trying to work out how much you can realistically afford.
Deposit
When you purchase a house, you will need to pay a deposit. This is a percentage of the purchase price in cash. Typically, first-time buyers will need to shell out 10% in cash whereas second-time buyers will usually need to pay around the 20% mark.
Repayment Capacity
The Irish Central Bank stipulates that borrowers cannot receive more than 3.5 times their annual salary (or a joint salary for couples). Banks have some wiggle-room here and a skilled mortgage broker may be able to help you raise the threshold.
The Application Process
During the mortgage application process, you will need to provide evidence that you are a trustworthy person with sensible financial habits. They want to see that you can afford to take on the mortgage while also still having money left over each month. This will demonstrate to the mortgage lender that you are a good qualified risk.
The mortgage lender will assess your application on various criteria. Whether you’re a contractor or a PAYE employee, you will need to meet some standard benchmarks. These include:
- Your ability to pay the deposit
- Your repayment capacity
- A clean credit history
While assessing your case, many lenders will seek information about your income, employment, living costs and existing loan repayments. As such you will be asked to supply supporting documentation (e.g. a paper-trail of prior loans, rent payments, or built-up savings).
Contractors will be expected to produce certain documentation to prove the sustainability of their income. These typically include your:
- Financial accounts
- Business bank statements
- Revenue Notices of Assessment (Tax Returns)
- Tax Clearance confirmation
If you are employing the services of a tax accountant that specialises in working with contractors, they will be able to help you to assemble and prepare these documents.
5 Tips for Contractors Applying for Mortgages
- If you have hired a specialist tax accountant, ask them to help you prepare your application. They will be able to supply you with much of the necessary documentation and provide you with helpful advice.
- If you intend to hire a financial advisor or a mortgage broker, find one who has experience working with contractors.
- Try to avoid long gaps between contracts. Maintaining a consistent work history for at least two to three years is key to showing the sustainability of your income.
- Aim to build up additional savings on top of your deposit to compensate for your salary in quieter months.
- Keep your personal finances in good order. For example, try to avoid bouncing direct debits or dipping into your overdraft. To give yourself the best odds of securing a mortgage, you will need to demonstrate an ability to save and pay bills on time.
Have a Question about Contractor Mortgages? Watch Our Webinar!
In 2020, Berkley Recruitment hosted a series of webinars entitled, “A Contractor’s Guide to Personal Finance.” This two-part series aimed to address common questions that contractors have about personal finance matters. Our first webinar focused on the subject of Mortgages and Buying a Home. Featured panellists included Margaret Barrett, a Mortgage Origination Manager at Bank of Ireland, and conveyancing solicitor David Sweeney. Watch the video above for expert advice tailored to the needs of contractors looking to purchase property in Ireland. You can read the full transcript here.