Key Post IT Contractor - Company Director - Mortage Success!

sean.c

Frequent Poster
Messages
160
Hi all
I'm picking up keys today for my house and I just thought I'd brief my fellow IT contractors on the road to success.

Scenario - I have my own limited company, my spouse is studying and taking a salary from the company, as well as my own salary. I have been contracting for over a decade. We are both First Time Buyers and at the beginning of this process, we had about €30k saved up (including €15k of child benefit being paid into one of those An Post accounts).

The good news is, this wasn't hard and my accountant was able to give me everything I needed as regards accounts, tax clearance, payslips and Revenue PAYE records.

Thanks to the use of eStatements everywhere, I did have to call the banks and get copies of personal & business statements sent out to me - at a cost.

I also had to pay extra for Management Accounts as I was applying partway through my company year (although that was only 1 bank, out of 3 that I applied to!).

Anyway, here goes and I hope this helps;
  1. Get raises
    As a contractor, I was happy with my rate until I started thinking about buying a house. Then I start taking on extra duties and at renewal time, I just demanded more money in return for these extra duties. As I was doing more work, my employers were happy to pay up.
    Take advantage of contracting and demand a pay raise EVERY SINGLE TIME.

  2. Extract everything as PAYE salary (except accountant & pension) for at least 2 years.
    The bank will average out your previous 2 years PAYE income. This gives your maximum mortgage.
    If, like me, your spouse draws a salary from the company, they will just add them together to form a total PAYE salary taken from the company.
    This will form the basis of calculations for your mortgage limit so you really, really, really want to maximize this over 2 or 3 years.
    So if you're taking expenses, and you also want to buy a house sometime - STOP the expenses! Suck it up.
    If you do the sums, as a first time buyer, I can get 3.5 times my PAYE salary. To take a minor example, my mobile phone;
    Mobile Phone: €40pm = €480py. Which equates to my max potential mortgage being reduced by €1,680 (480 x 3.5). And that's only one legitimate expense out of many.

  3. Have a pension.
    Not having a pension reduces the mortgage limit because the banks want to see that you have a pension. I asked the bank if it was worthwhile paying myself that money as PAYE and they gave it a definite "no". It was quite a big drop, so wasn't worth it and if you don't currently have a pension, start one!

  4. Have 3 years of:
    * Accounts (signed versions)
    * P60's, and/or
    * Self Assessment Letters and/or
    * Notice of Assessment (Form 11)

    I found it best to have all them because different banks wanted different bits of paper, despite the fact that they all say the same thing.

    The Form11 is especially critical because this will form the basis of the average salary used to calculate your mortgage limits.
  5. 6 months of relatively clean personal bank statements.
    OK, I had a few incidents of cash-flow which I thought would mess me up, but actually none of the banks seemed to care about us going into the red by a few 10s of euro the odd time over the 6 months. I get the impression it's far more important to them that all the bills got paid and we were still saving aggressively.
    Oh, yeah, that reminds me

  6. Save - aggressively, for 6 months before you apply.
    An important factor in affordability is how much EXTRA cash you have at the end of the month, and how they figure that out seems to be largely - how much have you saved?
    So save, lots.

  7. 6x months of Company Bank Statements (with more ready to go if needed).

  8. 6x months of savings account statements

  9. 6x months of Payslips (if your accountant doesn't currently give these to you, they should be!)

  10. 2x years of contracts (yes, they asked!)

  11. Tax Clearance Cert

  12. Salary Certs

  13. Be prepared to request Management Accounts.
    Especially if you're looking for approval part way through your company's tax year.
  14. If you can manage your credit card, use it and pay it off every month. Repayment of short-term debt is included in your 'affordability factor' (savings & short-term debt repayments).
    If you can't manage it, close it.
    If you can do neither, you might consider just not mentioning it...

Anyway I hope this helps
 

NewEdition

Frequent Poster
Messages
273
I was in a similar situation myself.. I would suggest having traceable rent payments too if you rent.

I was paying a friend cash to rent a room for 6 months and there was no record of this despite it being a legit rent a room scheme.
Set up a DD for rent so it shows ability to pay consistently.
 

LDFerguson

Frequent Poster
Messages
4,213
Thanks for a great post Sean. I'm curious about 3 above as I hadn't come across it before. By any chance were you applying for a mortgage that would extend past normal pension age?

Good luck in the new home. :)
 

Brendan Burgess

Founder
Messages
41,819
Absolutely superb and I have made it a Key Post.

3) surprised me as well. I would have always advised people who didn't own their own home not to start a pension but to save aggressively directly instead.

Brendan
 

RedOnion

Frequent Poster
Messages
4,594
Excellent post.

I've just been through the process with a friend who's contracting and all rings true, except for the pension piece in his case as I know he doesn't have one.

One of the biggest issues was getting a long enough contract from his client to satisfy the bank.
 

sean.c

Frequent Poster
Messages
160
I'm happy to be helpful, I've gotten lots of tips of the site over the years, gotta give back a little too.

As for pension, I am in my early 40s, but mortgage is only 23 year term so it will be paid off by the time I get to retire.

It was either EBS and Ptsb who clearly wanted the pension to be kept. Future repayment capacity was mentioned...
 

Dave_Curry_IMC

Frequent Poster
Messages
112
Absolutely superb and I have made it a Key Post.

3) surprised me as well. I would have always advised people who didn't own their own home not to start a pension but to save aggressively directly instead.

Brendan
Just adding my 2 cents, as there is some nuance to this, and OP's advice does not apply in all cases.

Background
Several banks require applicants to be contributing to a pension in order to be eligible for a term extending beyond a certain age (e.g. 65 for PTSB, 66 for Ulster Bank). These banks will extend the term to age 70 if the applicant is contributing to a pension (a reasonable amount - usually at least a couple of hundred euro per month).

How the Calculations Work
The (net) pension contributions are usually deducted from the applicant's disposable income, which slightly reduces the income left over for mortgage repayments. However, this reduction in the maximum mortgage available caused by a lower take-home pay is usually more than offset by the additional 4-5 years available in the term. This is how having a pension can make the difference between getting approved for less of what the applicant needs, and getting the full amount.

When Having a Pension Makes no Difference
If the applicant qualifies for the full amount required within the "standard" maximum term (to age 65 for PTSB & AIB, 66 for Ulster Bank, 67 for Pepper, 68 for KBC, etc.), then it makes no difference whatsoever whether he/she contributes to a pension. This can be the case if the applicant is aged 35 or under, or if their assessable income simply qualifies them for the required amount without the need to take a longer term.

Why Did it Matter for OP's Application if the Term does not Extend Beyond Age 65?
I assume that the mortgage amount was approved based on the longest term available (requiring a pension), but that the bank he went with allows the applicant to choose a shorter term following approval in principle. For example Haven/AIB (and I assume EBS) will allow this as standard, and will also allow the customer to extend the term back up to the term that the application was initially assessed over, if required. This can be particularly useful if affordability is limited for some reason following draw-down.

Best regards,
Dave Curry (broker)
https://www.linkedin.com/in/davecurryirl
 

rahmalec

Registered User
Messages
9
You said in order to maximise income, stop claiming expenses and suck up the tax for a while.
Fair enough, but now that you've gotten your mortgage, couldn't you just send in amended returns for the past couple of years with all the expenses included?
 

RedOnion

Frequent Poster
Messages
4,594
You said in order to maximise income, stop claiming expenses and suck up the tax for a while.
Fair enough, but now that you've gotten your mortgage, couldn't you just send in amended returns for the past couple of years with all the expenses included?
I guess you don't have a Ltd company in your situation?
 
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