Self-Employed borrowers hardest hit says Loan Market


Self employed people have been hardest hit by the more cautious lending policies which have resulted from the global financial crisis, a national survey has found.

Loan Market Chief Operating Officer Dean Rushton said a survey of the company’s own mortgage brokers found 64 per cent believed the self-employed were the borrowers most disadvantaged in the post-GFC lending environment.

Mr Rushton said 32 per cent of the 205 brokers who responded thought first home buyers were worse off while the remaining four per cent of respondents said people refinancing were the most badly affected.

“The current credit environment makes it tough for hard working self-employed people and small business owners to obtain finance,” Mr Rushton said.

“These people have felt the impact of interest rate rises last year on their businesses so they are hit with a double whammy if they also have a struggle to obtain finance.”

Mr Rushton said the self-employed often applied for low-documentation loans, which usually have higher interest rates than full document loans, larger minimum deposits and a lower loan-to-valuation ratio (LVR).

But he said these low-doc loans were harder to obtain in the post-GFC climate and also as a result of the new National Consumer Credit Protection laws.

“Under the new National Consumer Credit Protection (NCCP) legislation, lenders are being more cautious when lending to the self-employed and small business owners,” he said.

“Unlike PAYG borrowers, they do not have straight forward pay slips or group certificates to verify their annual income and as a result many of these hard working people are finding it more difficult to have loan applications approved.”

Mr Rushton said Loan Market fully endorsed the objective of the NCCP laws to counter irresponsible lending practices, which had in the past included misuse of low-doc criteria.

“But unfortunately some self-employed Australians with genuine credentials to obtain finance are also being impacted,” he said.

“Many of these borrowers are retailers who are already being hit hard with consumer caution brought on by multiple RBA rate rises in 2010.”

Mr Rushton said the current federal government review of the consumer protection laws should consider how to ensure small businesses retain access to finance under fair lending criteria.

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  1. Self employed, Well I am self employed, and I have to say, my tax returns are completed on time.

    Self employed? Which area? Trades people, retail, hospitality? It seems to me, that trades people, are still wanting CASH!!

    There is an old saying, “If you want to dance, you need to pay the band?

  2. “fully endorsed the objective of the NCCP laws to counter irresponsible lending practices, which had in the past included misuse of low-doc criteria.”

    The NCCP’s objective to counter irresponsible lending practices in reality is the metaphorical sledge hammer to crack open a peanut.

    It is a failed piece of legislation that has no (or near enough to no) consumers better off or better protected & many consumers worse off and all consumers drowning in more paperwork.

    Can I also dispel the myth that somehow low doc lending always equates to ‘cash’ businesses. The self employed who are willing to commit fraud and evade tax will continue to do so (and still get loans approved). However, most of the remaining honest self employed businesses are disadvantaged when applying for a home loan when compared to a PAYG employee. This has nothing to do with cash in hand. There are many technical reasons why this is the case.

    To provide just one example, even lenders requesting only most recent years tax returns for self employed can be working off monthly income volumes from as far back as 30 months ago. Many lenders still want 2 years tax returns (meaning monthly income data from as far back as 42 months ago are included in servicing calculations). Lenders don’t ask about a PAYG’s income from 42 months back (usually it doesn’t matter what you were earning even a month ago). If you just got a pay rise or a promotion, simply provide your 2 most recent pay slips and you’re good to go on a PAYG’s application & your application is assessed on your current income (not an average of your salary over the last 1, 2, 3 or more years as is the case for a self employed loan applicant).


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