Self employed clients: what are the home loan options?

You’re not imagining it: over the past two decades the self-employed proportion of the Australian workforce has increased considerably, with at least 2 million Australians now working for themselves.

We all know borrowing laws traditionally don’t favour the self-employed, but, given the high numbers of people who are working for themselves, this is likely to change in the future to reflect the shifting workforce.

In the meantime, when you meet clients who work for themselves and are looking to borrow, there are a few things to keep in mind:

  • Confirm your client is actually considered self-employed. Contractors and sub-contractors can sometimes get away with being seen as an employee, with some lenders.
  • If your client is considered self-employed for borrowing purposes, they’ll need the last two year’s financial statements, income tax returns and up-to-date notice of assessments. Remember, banks rarely accept financial statements not lodged with the ATO.
  • Banks use different methods of assessment for self-employed people but it’s usually an average of the client’s last two years income or the lower income of the last two years.
  • Some lenders allow self-employed applicants to apply for a home loan by providing 12 months of BAS statements. BAS statements provide a lender with an indication of the business’s turnover and lenders can apply a ratio to that number to determine how much income is produced – and how much can be borrowed.

Of course, the main thing to tell a self-employed person wanting to buy property is to be on top of their accounting. Good records are key to presenting as a desirable loan candidate.