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Welcome to the finance update for the week ending 29 April, 2023.
More encouraging news on the interest rate front this week, with NAB the latest bank to announce that it will decrease its fixed home loan rates after the Reserve Bank paused interest rate rises for the first time in months.
The bank’s three-year fixed terms will experience the highest cuts with owner-occupiers to have their rate cut by 0.5 per cent to 5.54 per cent and investors rates to lower 0.6 per cent to 5.64 per cent. NAB’s move follows Commonwealth Bank and ANZ announcing similar rate cuts in recent weeks.
In this week’s newsletter, we take a look at mortgages for the self employed which require a different set of supporting documentation than for standard employees, and what options are available for those without the ‘standard’ requirements.
When self employed, getting a home loan can involve a few extra steps making the process more complex. Here are some common obstacles involved and solutions to get into your home quicker.
Loan Requirements
- Proof that your ABN has been registered for at least 2 years
- Last 2 years’ personal and business tax returns and tax assessment notices
- Balance sheet and profit and loss statements covering the most recent 2 years
- Details of any external liabilities: leases, hire purchase, overdrafts, company loans and/or guarantees
- Last 1 month’s business bank statements
Home Loans for Self Employed Under 2 Years
If self employed for under 2 years, there are some solutions available to get a home loan. If you do not have 2 full years of experience operating your business, lenders may require you to at least work in your industry for longer than two years and provide old payslips and references from former employers. This can be used to identify your work and income history prior to starting your own business.
Low Doc Home Loans
A low documentation (low doc) home loan is a type of loan that is suited for self employed borrowers who can’t supply conventional proof of income required for typical home loans.
A low doc loan is beneficial to the borrower as it involves a simplified income declaration form and involves using alternatives to tax returns as income evidence. It is important to note that this loan type does not involve providing less evidence of income, as it’s about providing alternative sources to prove your income.
Whilst a low doc loan is a useful tool for self employed borrowers to apply for a home loan, the increased risk perceived by the lender may result in a higher-than-average interest rate and more limitations in terms of the maximum loan to value ratio (LVR).
It’s worth noting that not all lenders will offer a low doc loan.
If you have self employed buyers in need of assistance with their mortgage, please send them our way.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
Standard Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
