Self-Employed Home Loans from 5.99% p.a.

Why Self-Employed Borrowers Face Different Challenges

Self-employed Australians represent a significant portion of the workforce, yet the home loan process often feels tilted against them. The fundamental challenge is that lenders assess loan serviceability based on taxable income, and self-employed individuals typically — and legitimately — minimise their taxable income through business deductions. The very strategies that reduce your tax bill also reduce your apparent ability to repay a mortgage in the eyes of a lender.

Consider a business owner earning $200,000 in gross revenue who claims $100,000 in legitimate business expenses including vehicle costs, home office deductions, depreciation on equipment, and professional development. Their taxable income of $100,000 is what lenders use to calculate borrowing capacity, even though the owner may have significantly more disposable income available — particularly from non-cash deductions like depreciation that do not actually reduce their cash flow.

This is where choosing the right lender becomes critical. Some lenders are far more accommodating of self-employed income than others. Certain banks and non-bank lenders use "add-back" policies where they add non-cash deductions like depreciation back to your taxable income when calculating serviceability. This can increase your borrowing power by $50,000-$200,000 depending on the size of your deductions.

Tax Returns and BAS: What Lenders Look For

When you apply for a full-doc self-employed home loan, lenders will request your most recent two years of individual tax returns and corresponding ATO notices of assessment. If you operate through a company, partnership, or trust, they will also require the entity's financial statements and tax returns for the same period.

Lenders analyse these documents to determine your average income over the two-year period. If your income is increasing, some lenders will use the most recent year's income rather than the two-year average, which benefits borrowers whose businesses are growing. Conversely, if income has declined, lenders will typically use the lower figure.

BAS (Business Activity Statements) play a supplementary role even in full-doc applications. Your quarterly GST turnover reported on BAS confirms the consistency of your business revenue and can support the income figures on your tax returns. For low-doc applications, BAS becomes the primary income evidence, so lodging your BAS on time and keeping it accurate is essential.

Tips to Improve Your Approval Chances

Preparation is everything when applying for a self-employed home loan. The following strategies can significantly improve both your chances of approval and the amount you can borrow:

Plan your deductions strategically. If you know you will be applying for a home loan in the next financial year, consider whether some deductions can be deferred. For example, postponing a large equipment purchase by a few months could increase your taxable income for the assessment period. This does not mean paying more tax than necessary — it means timing your deductions to align with your borrowing plans.

Keep personal and business finances separate. Lenders scrutinise your bank statements, and mixed personal and business transactions make income verification more difficult. Separate accounts present a cleaner picture of your business cash flow.

Reduce unnecessary credit facilities. Even if you do not use them, unused credit card limits, overdraft facilities, and lines of credit reduce your borrowing capacity. Lenders assume you could draw on these facilities at any time, so close any facilities you do not actively need before applying.

Pay down existing debts. Credit card balances, personal loans, and car finance all reduce your borrowing capacity. Clearing these debts before applying frees up serviceability for your home loan.

Business Structure and Income Assessment

How your business is structured affects the way lenders assess your income, and some structures are easier to lend against than others.

Sole traders have the simplest assessment. Your business income flows directly through your personal tax return, and lenders assess your net business income after deductions. Add-backs for depreciation and other non-cash deductions are commonly applied.

Partnerships are assessed based on your share of the partnership profit. If you are a 50% partner in a business that earns $200,000 profit, lenders attribute $100,000 to you. Partnership agreements should clearly document profit-sharing arrangements.

Company directors present a more complex picture. Lenders look at your director salary, any dividends paid, and potentially the retained earnings of the company. If you pay yourself a modest salary and retain profits in the company, some lenders will consider those retained earnings as available income, while others will not.

Trust beneficiaries require the trust's financial statements and distribution minutes. Lenders assess the distributions you have actually received, which must be consistent with the trust's income. Discretionary trusts can be challenging because the trustee has the power to vary distributions each year, creating income uncertainty from the lender's perspective.