How can lenders support the self-employed?
Publication Date: Thursday, 26 July 2024
This article originally appeared in Mortgage Business.
To understand the complex landscape of home lending for the self-employed, Brighten Home Loans unpacks its diverse offerings.
Navigating the Australian housing market as a self-employed individual presents unique challenges. Despite contributing $115 billion to total labour incomes in 2023 (according to the Australian Bureau of Statistics), securing a home loan can be daunting due to the fluctuating nature of self-employed income and the extensive documentation requirements of the mainstream banks.
But the issue is of paramount importance given it impacts a vast number of borrowers. Approximately 2 million Australians are self-employed, according to research from data analytics company Global Data in 2021, making up a significant proportion of the workforce and home buyers. In fact, self-employed individuals make up approximately 15 per cent of the Australian workforce (according to the Australia Institute); being approved for home loans can prove difficult for this cohort due to the inconsistent nature of self-employed income.
While traditional banks typically require self-employed individuals to provide two years of financials, business bank statements, proof of balance sheets, and sometimes more, non-bank lenders may offer loan products that accept alternative income documentation. These lenders have become an integral source of funding for the self-employed.
Indeed, the Reserve Bank of Australia revealed in April that non-banks increased their share of self-employed borrowers in 2023 (as well as alt-doc loans and self-managed superannuation fund loans) as banks have tightened up.
One such lender committed to support the self-employed borrowers is non-bank lender Brighten Home Loans (Brighten). The non-bank announced earlier this year that it would be lowering its serviceability buffer to 2 per cent and introducing a servicing option that would provide a reduced buffer of 1 per cent of eligible refinance loans.
The serviceability buffer changes came amid 15 policy changes that were announced in February and were designed to improve serviceability and streamline paperwork, according to Brighten.
Among the policy changes, the non-bank lender announced a new policy to support self-employed borrowers that allows Brighten to accept company wages as evidence to approve a loan with a loan-to-value ratio of less than 80 per cent.
According to Brighten, the policy is suitable for borrowers who have paid themselves director wages or a regular salary for the past six months. Under the policy, applicants are required to provide six months of bank statements (or ATO income statements), two consecutive payslips, and an accountant’s letter, proving that the company has adequate profits to meet business commitments and has traded successfully for two years.
In the alt-doc space, Brighten also offers a competitive Prime Alt Doc product with market leading interest rates, loan sizes of up to $2.5 million, and $0 Risk Fee up to 80% LVR.
Speaking to Mortgage Business, Brighten’s CEO Jason Azzopardi says: “These products underpin our focus on assisting self-employed customers in achieving their property ownership goals.”
According to the CEO, Brighten prides itself on its responsiveness to broker feedback and its dedication to providing effective solutions in a dynamic market environment.
“By regularly reviewing our offerings and making necessary adjustments, we demonstrate our commitment to supporting self-employed borrowers and ensuring our loan products remain competitive and tailored to meet their evolving needs.”
Says Brighten’s CEO Jason Azzopardi
Azzopardi suggests that it was the flexibility and nimble nature of the lender that was making it increasingly popular with brokers for their self-employed clients.
He says: “We offer a comprehensive suite of solutions for our self-employed customers, catering not only to those with Full Documentation but also to individuals seeking loans with Alternative Documentation for income verification.
“Our Alt Doc Prime product, Brighten Boss® Prime, requires just one form of income documentation for verification. Our competitive pricing, along with our 48-hour service-level agreement, has continued to attract significant interest from our broker partners,”
“Supporting self-employed borrowers provides opportunities in a recovering and evolving market landscape,” he adds.
Says Brighten’s CEO Jason Azzopardi
Given the growing cohort of brokers wishing to tap into this opportunity by writing more self-employed loans to help more borrowers with financials that may be ‘out of the box’, the non-bank has been providing regular training for brokers to support them with client interaction and policy knowledge.
Azzopardi says: “We also offer regular training webinars and workshops to equip brokers with not only knowledge about products and policies, but also with industry best practices to better serve their self-employed clients.”
He outlines that Brighten is always encouraging brokers to diversify their business and “broaden their client base”, adding it was “crucial” for a self-employed borrower to have the benefits of working with a lender that has a “deep understanding of the self-employed market”.
The Brighten CEO says: “Central to our approach is our Sydney-based team of experienced credit assessors, who offer a nuanced understanding of the financial profiles of self-employed borrowers.
“Their expertise enables us to provide a more accurate and efficient loan assessment experience for our brokers and customers,” he says, adding that its sales team also complements its credit team and is recognised for its “commitment to delivering superior services to our broker partners”.
Solving a self-employed scenario
Mr H is a successful business owner and seasoned investor with three investment properties. He runs three successful businesses and was looking to add another property to his portfolio. As a director of the company, Mr H receives regular wages and was looking for a competitive lending solution with streamlined paperwork requirements.
How did Brighten help?
Through his broker, Mr H provided Brighten with two consecutive payslips, six months of bank statements (showing payment being made via salary credits), and an accountant’s letter, confirming that the company has sufficient profits to meet its business commitments and that the business has traded profitably for the last two years.
Given all the criteria were fulfilled, Brighten approved Mr H’s application under its Full Doc Prime product Brighten Empower Prime.