This was published 5 years ago
Knocked back: It's difficult getting a loan if you are self-employed
By Nina Hendy
When it came time to purchase a home, Tiffany Gouge and her husband diligently filled out the paperwork for the banks.
The 29-year-old freelance graphic designer was grilled about her financials – despite earning more than her husband and being self-employed, full-time for six years.
“The hoops we had to jump through were horrendous," Tiffany says.
"Two years of complete financial records were needed, including bank statements, tax assessments, notes from my accountant and everything in between," she says.
But time and time again, their application was refused.
Tiffany George was repeatedly refused a home loan because she was self-employed.Credit:
“None of the smaller banks would touch us, including our local independent bank, which I had been banking with since I was 14.
"All said 'no' because I was self-employed,” Gouge, of Orange, says.
Finally, the couple secured a loan through one of the big-four banks, but it’s meant they have had to borrow less than they would have if both of their incomes been taken into account.
“As it is, they only put my husband’s name on the deeds to the house, even though I’m co-signed on the loan. Something to do with me being a financial risk because I’m self-employed," Gouge says.
“Freelancers make the same money as those in full time jobs – sometimes even more.
I earn more than my husband. Why should I be penalised because I’m self-employed?
"In my case, I earn more than my husband. Why should I be penalised because I’m self-employed?”
Gouge is by no means alone. With more Australians self-employed than ever before, the home loans industry is struggling to keep up with demographic changes to the workforce.
Research reveals that a large group of Australians are still being under-serviced by banks, with almost one in five declined a loan, according a survey undertaken by Pepper Money, to highlight the growing proportion of people seemingly locked out of the financial system.
It found that more than a quarter (26 per cent) were turned down for a loan because they were either self-employed or worked part-time.
Lending policy changes
And recent moves suggest it is not going to get any easier any time soon for the self-employed wanting to pursue their dream of home ownership.
Westpac and its subsidiaries recently made changes to residential lending policies, including tightening measures for self-employed borrowers, making it more difficult for the two-million self-employed Australians to access the housing market.
When issues arise in the economy or events like the Royal Commission occur, the default position of major banks is to turn away anything difficult or complex, explains Evan Dwyer, managing director of specialist lender RedZed, which focuses on the self-employed sector of the market.
“The underwriting systems have become more automated and the personal connection between a bank manager and customer has become all but non-existent,” he says.
Assessment methods
“Self-employed borrowers all have a unique story. However, many bank employees don’t have the time or support to understand the story based on their pre-defined inputs and, as a result, those who are self-employed are classified as riskier than an employee,” he says.
However, the banks dispute their is a problem with the assessment methods for the self-employed.
ANZ says it reviews all customer loan applications with the same lending criteria and assessment, regardless of employment type.
“When considering a candidate for a loan, ANZ assesses, among other things, the applicants’ ability to service a loan, their credit history and the type of property being financed,” a spokeswoman says.
A Commonwealth Bank spokesperson said it has a variety of home loans suitable for self-employed borrowers.
"Self-employed customers will have to show their most recent year’s personal and business tax returns, including business financial statements," the spokesperson said.
"In addition, they will need their most recent Australian Taxation Office Notice of Assessment.
"We assess every home loan application on a case-by-case basis, to ensure we meet both our customers’ needs and our responsible lending obligations."
A NAB spokesman said the bank understood how daunting the home loan process can seem.
"We assess applications on an individual basis by having detailed conversations around expenses as well as income – both self-employed and salaried employees," a bank spokesman said.
THE FOUR Cs
Key components loan assessors use to decide whether to lend to someone who is self-employed
Character: Assessing whether you are a good client, how long your business has been running and if you have disclosed all debts.
Capacity: Assessing if you can afford to repay the loan, often done with calculators to ensure you can make repayments without getting into financial hardship.
Credit: A credit history check to ascertain whether a borrower has repaid loans in the past.
Collateral: The security you are putting up for the loan.