Successful Mortgage Applications When Self-employed

Being self-employed is a great option for many people and can give freedom in a lot of areas of life. It can also mean a few more challenges, and a question which comes up often in business circles is how to make the most of your income when applying to borrow money for a home purchase.

There are a few key things to think about and have ready to discuss with your bank or mortgage adviser.

How do banks establish what I earn?

When a person is self-employed, the bank will use your “tax paid income” which is the money left over once your expenses are paid and is the income which is returned to the IRD.

This is quite different from turnover, or your “gross profit” as it accounts for the expenses you incur as a direct result of doing business. For many small business owners, the line between personal and business expenses can be blurred, but as a rule of thumb, if you have claimed the expense as a business expense, it will be deducted as such to obtain your” tax paid income”.

Generally, the higher your tax paid income, the higher the lending amount the bank may be able to offer you.

What do I need to provide the bank?

Most banks will require business financials (prepared by your accountant), for at least the past 12 months and ideally the past 2 years.

If you’re halfway through a new financial year, expect to be asked for profit and loss statements (P&Ls) or similar, which are usually downloadable from your accounting software programme.

If you are an independent contractor and you don’t get financials prepared, your IRD Tax Summaries will confirm what income you are paying tax on. These can be downloaded from the IRD website and supplied as evidence of income.


What if I’m newly self-employed?

Often this depends a lot on your career trajectory until this point in time. Banks will carefully consider the risk that your income could be affected or reduced, and will look for patterns to ensure you’ll have sufficient income to meet your financial commitments.

If you have been in a similar industry prior to moving into a contractor role (this is common for trades or professional services), often the bank will be happier with shorter term tenure as a contractor if one client company can commit to a certain number of weekly hours via a written contract.

With newer businesses, non-bank lenders can be more helpful, especially if you have a large deposit or significant property equity. These vary significantly in their offerings but generally require more security (cash, property or collateral of some kind) and charge a higher interest rate and fee for service.

Be sure to check terms & conditions carefully; and make a clear plan for when you’ll be able to satisfy requirements of a standard bank, where you’ll be eligible for better rates and longer-term certainty.

While it may be a little more involved to borrow money when you’re self-employed, it’s most definitely not impossible, just a little different.

Involving experts like your accountant, mortgage adviser and/or banker and being armed with the right information will ensure success and your new property will be just around the corner!

To find out more about Claire and how she helps her clients, check out her website: