Some changes for the self employed.

Nov 25

Some welcomed changes to self-employed income assessment.

It is no secret that the self-employed have been hit extremely hard with the last 2 years of COVID. Unfortunately, self-employed borrowers have been even more adversely affected than most as borrowers that are employed can borrow again once their payslips return to normal. For the self-employed they are (were) required to provide the last 2 full year’s tax returns and this can affect borrowing for years.

Lenders deduct the government benefits paid in this time from self-employed financials. This includes Job Keeper payments, and the cash flow boosts. Most lenders also ar enow allowing us to add back the instant write offs that that were introduced to assist business owners in this time. In summary self-employed clients that are back on track financially are trying to borrow with financials that are not reflective of the income they have now or the income they require to buy their next home or to refinance.

Some things just don’t make sense….

I have spent endless hours on the phone to accountants explaining that the instant write offs and cash flow boosts are things that really should be accepted in lending however they are simply not. I agree with the accountants but as always, we need to work in the lending guidelines of the banks.

There is some amazing news for the self-employed.

The details..

A few banks have released new policies that will help combat these hurdles for the self-employed. These changes differ between banks and my advice for all self-employed clients is to reach out to the team or to their mortgage broker to get this advice now so they can be prepared for their next steps.

A few of the changes are outlined below:

Simple Self-Employed Process – a major bank has simplified the process for self-employed applicants, especially company owners by accepting salary credits over the last 6 months. This has never been done in mainstream lending (not low doc) lending before.

Basically, what this means is the bank will ignore the tax returns and company returns and look at the salary you have been paid by the company over the last 6 months.

This will assist many company directors with complex financials and those who may have some recurring losses in the company from asset write offs that cause issues when they borrow. This is the most streamlined process we have seen and really suits those borrowers who own a business and do not require company profit to borrow.

Streamlined Self Employed Process – a separate major bank has a policy that will allow the self-employed applicant to use Notice of Assessment to verify income. This is a very simple process for those company directors who have complex financials however their incomes in the last 2 years personally will be enough income to cover their lending.

Neither of these options require tax returns for the individual or for the company or related entities.

There is no difference to rate or product choice. This is a “credit policy” not a product. Many clients not aware of these policies may believe that their only option is a low doc loan or a less desirable home loan rate or lender. This may no longer be the case.

Obviously, there are requirements to meet and other lending criteria. This Blog more to inform you and your clients that there are other options that were not available last month, and it is time to revisit your options if you are self-employed or if you have self-employed clients.