Self-employed investors fight uphill battle

by Jayden Fennell 20 May 2022

The biggest challenge self-employed investors are facing at the moment is outdated financial information, says a South Melbourne mortgage broker.

Sprint Finance’s Nathan Massie (pictured) said tax returns were due on May 15, and with 2021 being affected by COVID and lockdown restrictions, banks were putting self-employed investors through the ringer.

“Banks want to see a full year worth of financial documents and whether you had an increase year-on-year,” Massie said.

“If a self-employed investor had only been in business for a short amount of time, they would have next to no chance of being approved for a loan.”

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Massie said the biggest benefit mortgage brokers could provide self-employed investors was the fact many are self-employed themselves.

“We know the structure and process from a lending point of view but also as a borrower,” he said.

“We understand we have more access to banks and lenders, as the big four have limited options. As a self-employed person, I have the ability to communicate with an accountant which is a win for my client. It’s a 360-degree thinking approach.”

Massie said self-employed investors work in the loan doc space where they must make a minimal 20% deposit to purchase a property, are charged a higher interest rate and meet with an accountant to verify their income.

“Paying at a higher interest rate extrapolates over multiple years,” Massie said.

“The property market has increased year on year in the last decade, so investors need to wait longer to get in and pay a higher price because of it. They also need to put in a larger deposit, so it’s not a level playing field.”

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Massie said with interest rates rising, in many cases it would mean self-employed investors’ monthly financial commitments would increase, reducing how much they could borrow.

“If their lending has been structure right from the start, we could be putting people in a position where they will be over leveraging,” he said.

“Now is a time to be structured, methodical and looking at the client’s long-term plans. When working through the numbers and sitting down with a broker, factor in future rate rises because in business, it is all about cash flow.”

Massie said self-employed investors struggled to obtain finance to begin with as it took longer compared to someone earning a salary.

“More information needs to be provided along with more paperwork. It is an area my team and I love working in, it is satisfying to find a clear path and work towards finding a solution.”