Getting a Mortgage as a Self Employed Contractor in 2021 - What do I need to know?

2020 was a year of many surprises across the globe.  One of the biggest surprises in the Irish market was the resilience and growth within the housing market with asking prices increasing by 6% despite the economic chaos happening in many other areas of the market. In the same period mortgage lending hit a “new cycle high” and the trend is expected to carry into 2021.

So what does that mean for those hoping to get a mortgage & buy in 2021?

There are many misconceptions about getting a mortgage as a self-employed contractor – we are here to set the record straight & make the process as easy as possible for you to get the keys to your new home this year!

So let’s start busting those myths!

Myth #1

Contractors are not eligible to apply for a mortgage due to the sometimes unpredictable nature of their work

Simply put -not true!

Mortgage lenders are perfectly willing to speak with Contractors and many of the rules applying to permanently employed PAYE workers also apply to Contractors.

14.75% of Irish workers were self-employed in 2020 meaning that the self-employed represent a significant market share for lenders seeking to snare potential buyers.

Each of the standard benchmarks which apply to full-time employees are also applicable to Contractors, so no need to worry that you will be viewed negatively by lenders.

Myth #2

Contractors require a larger deposit that full time employees to secure a mortgage

Fake news!  Deposit rules don’t change for contractors. First-time buyers are still required to back their purchase by providing 10% of the property price up-front; it’s 20% for everyone else.

Myth #3

Contractors will be subject to more stringent credit history reviews

Nope!

No matter what your employment type you will be subject to an in depth credit review before you are granted loan approval – same rules apply! One thing to consider when you are thinking of applying for a mortgage in the near future is consistency in your contracting employment. Although one of the perks of working contract-to-contract is the ability to take holidays at your discretion, banks will be examining your employment history of the last two (in some cases three) years – so demonstrating a consistent work history is still important as it would be with any other employment types.

Myth #4

Contractors can’t borrow as much as their full time employed counterparts

No again! The benchmark for the amount you can borrow remains the same: Contractors can borrow 3.5 times their annual salary. Banks have some wiggle-room here. This threshold can sometimes be raised further, but only for a limited number of mortgages and depending often on the quote already granted within that calendar year.

Myth #5

Rules for repayment capacity testing for Contractors are more strict than for non- Contractors.

Mortgage lenders will request evidence that an applicant whether a contractor or non- contractor possesses the capacity to repay their loan. Lenders tend to be flexible in this regard too: a paper-trail showing prior loans, rent payments or accumulated savings are considered demonstrable proof that an applicant has the scope to repay their loan.

Conclusion

Contractors seeking a mortgage should ensure that they keep their personal finances in order no different than any other employee. Whether you are contracting or working a permanent job, banks don’t like to see bounced direct debits or customers dipping into their overdraft. Being able to demonstrate a strong ability to save and point to a favourable credit history remain vital indicators of financial health to mortgage lenders.

Whether you’re already contracting or thinking about becoming a Contractor, our team are here to help you on every aspect of contracting life here.