Being your own boss has real advantages, but it can make getting a mortgage feel harder than it should. The income is there, the deposit is there, yet the bank hesitates. Understanding how lenders assess self-employed income, and preparing for it, makes a big difference. Here is what business owners in Wellington need to know.
Why self-employed lending is different
For a salaried employee, income is simple: the bank sees a payslip and an employment contract. For the self-employed, income can vary year to year, and the figure on your tax return is your profit after expenses, not the cash flowing through the business. Lenders account for that by looking deeper, and by being more cautious. It is not that they will not lend to you, it is that they assess you differently.
What documents lenders want
Most main banks will ask for two years of business financial statements and your IR tax returns, recent business and personal bank statements, GST returns in some cases to confirm turnover, and evidence of how long you have been trading. Less than two years of trading is the single most common hurdle.
How lenders calculate your income
Lenders generally start with your net profit, then make adjustments known as add-backs. Some expenses on paper are not ongoing cash costs, so they can be added back to give a truer picture of what the business earns. Common add-backs include depreciation, which is an accounting expense rather than a cash one; one-off or non-recurring costs; and shareholder salaries and certain interest costs, depending on the structure.
Lenders also look for consistency. Two steady years carry more weight than one strong year following a weak one, and a downward trend will raise questions. The way your accountant structures your financials genuinely affects how much you can borrow.
Common hurdles, and how to get ahead of them
If you are newly self-employed with under two years of accounts, your options narrow, but some lenders will consider a shorter trading history with a strong story behind it. If you minimise profit for tax by running expenses through the business, remember that also reduces your assessable income for lending, so there is a balance to strike in the years before you apply. And messy or late financials make lenders nervous, so get your returns filed and tidy before you apply.
When a broker makes the difference
This is where self-employed buyers benefit most from a broker. Beyond the main banks, there are non-bank and specialist lenders (the kind we work with every day) that take a more flexible view of self-employed and variable income, including options for borrowers with a shorter trading history or a less conventional profile. We know which lender suits which situation, and we present your application in the way that lender wants to see it.
Beyond the home loan
As business owners ourselves, we also help on the commercial side: business loans for working capital or growth, equipment and asset finance, and commercial property lending. If your home loan and your business finance are connected, it helps to have one adviser who sees the whole picture.