Tough conditions for self-employed borrowers

Advisers say that the self-employed are bearing the brunt of tight lending conditions, with banks concerned about the long-term impact of Covid-19.

Glen McLeod

According to advisers across the market, the self-employed are finding it more difficult to take out a home loan, with lenders placing deals under the microscope.

Advisers told TMM Online that banks are asking whether sole-traders have taken the government wage subsidy. They say banks are treating earnings projections differently, affecting clients' ability to borrow. 

Glen McLeod of Edge Mortgages said: "With regards to self-employed one of the banks is taking 70% of the 2019 financials as the maximum that they will attribute towards income for clients. It does make it extremely tricky when trying to put together an application."

He expressed frustration that direct deals were being treated differently. 

"I think the most annoying part of this whole situation is that it seems as if the client goes direct to the branch they get treated differently to how they would if we put our applications in."

iLender's Jeff Royle said the self-employed were being asked "questions around the Covid effect, and [banks are] requesting either P&L or management accounts with bank statements from April 1 to date".

Q Group's Geoff Bawden said the self-employed "have been particularly targeted because almost everyone has been affected by the impact of Covid".

He added: "In addition to providing past income detail we are having to provide evidence of what has happened since the advent of Covid, ie in this current financial year. The banks are seeking assurance that past performances can be sustained – very difficult to prove in this environment."

Bawden said people working in certain sectors were being put under the microscope.

"There are some obvious high risk industries that are also a target, for example travel and hospitality. In fact anyone who was seriously impacted by, particularly, the first lockdown."

He argued banks were going too far.

"There is a mindset amongst the most conservative that the client might not recover to previously recorded income levels. I personally think that is short sighted and it undervalues the resilience and capacity of most Kiwis."

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