Sunday Dec 04, 2022

How much income will banks look for when considering my mortgage? – The Irish Times


I’m currently living with my parents and trying to save a deposit to buy a home. I am self-employed and have a lot of flexibility in terms of where I work.

In looking at properties to buy, my plan is to try and get either a two-bed, where I will rent out the other bedroom under rent-a-room relief, or a three-bed, where I will also rent out the second under rent-a-room relief and use the third as a home office.

Will mortgage lenders take into account my plan to have income under rent-a-room relief when they are determining borrowing limits?

Also, can I get any tax deduction from using a third bedroom as a home office? I would consider sharing the home office with the person in the second bedroom as well. I am aware that I can get a deduction for a portion of the cost of broadband, electricity and heat from working from home. My query is more in relation to a notional rent/lease costs of using the third bedroom as a home office. Considering that the use of a third bedroom as a home office would not impact principal private residence status for capital gains tax, I would understand why a deduction might not be available.

Mr ML, email

With property prices rising the way they are amid tight supply, it’s no wonder that people are getting creative in trying to maximise their income or relief to increase their chances of persuading a bank to lend them enough to seal the deal. However, the rules are fairly tight and the banks – for all their glossy ads – are absolutely risk-averse at the moment.

That’s hardly surprising as they are still trying to offload soured loans from the last property crisis but it is little consolation to people like you who are looking to buy their first home.

Lenders are interested in only one thing: whether you can make your repayments.

For people like you who are self-employed, they will generally want to see two years of filed accounts to get a picture of your earnings

The Central Bank has also imposed mortgage rules to ensure people do not overexpose themselves to financial risk. The Central Bank rules state that, in general, banks can only lend you 3.5 times your salary and 80 per cent of the value of the property. This rises to 90 per cent for first-time buyers like yourself.

There is some scope for “exceptions” but the banks are limited in how many of these they can grant. Most tend to be used up early in the year.

Strict criteria

Outside these strict rules, banks will want to see evidence of sensible money management over recent years (ie bank statements with no evidence of arrears or unsolicited borrowings) and evidence of earnings. They will check your credit history.

On the earnings side, things are easier for those in PAYE employment who will need wage slips and confirmation they are in permanent employment rather than on probation, contract work etc. For people like you who are self-employed, they will generally want to see two …….


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