Before I became a mortgage adviser, I ran my own service business in Taranaki for seven years. I know first-hand what it's like to go to a bank as a self-employed person and feel like the rules aren't written for you. This article is what I wish someone had told me then.
Getting a mortgage when you're self-employed is not impossible — but it does require a different approach than if you're on a salary. Banks like certainty, and self-employed income often doesn't look as clean or consistent on paper as a payslip does.
The good news is that the right mortgage adviser can make a significant difference. Knowing which lenders are genuinely self-employed friendly, and knowing how to present your financials, is often the difference between approval and decline.
Why banks treat self-employed income differently
A salaried employee gets the same amount every fortnight, indefinitely. A bank can look at two payslips and be confident about income. As a business owner, your income may vary significantly year to year — you may have had a great year followed by a slower one, or vice versa. You may also be legitimately reducing your taxable income through business expenses, which looks great for tax but makes your "income" on paper look lower than it actually is.
Banks are trying to assess: can this person reliably repay a mortgage over 25–30 years? With self-employed income, that assessment is more complex — and different lenders take quite different approaches to answering it.
What documents you'll need
Most lenders will want to see:
- ✓Last 2 years of financial statements, signed by a qualified accountant
- ✓Last 2 years of personal tax returns (IR3) and, if applicable, company tax returns (IR4)
- ✓Latest 3–6 months of business bank statements
- ✓GST returns for the past 2 years (if GST-registered)
- ✓Evidence of business registration (companies register, NZBN)
- ✓In some cases, an accountant's letter confirming your trading status and income trend
If you've only been trading for one year, some specialist lenders will still consider your application — but the options narrow considerably. Two-plus years of accounts gives you the most flexibility.
How lenders assess self-employed income
Different lenders use different methods. The three most common are:
Two-year average
The most common approach. The lender takes your net income from the last two financial years and averages them. If year one was $80,000 and year two was $100,000, they'll assess your income as $90,000.
Most recent year
Some lenders will use only your most recent financial year — which is advantageous if your income has been growing. If you earned $80,000 two years ago and $110,000 last year, using only last year's figure works in your favour.
Add-backs
This is where things get interesting. Some lenders will "add back" certain deductions — like depreciation, one-off expenses, or director's vehicle costs — to your net income figure, effectively increasing the income they assess you on. Not all lenders do this, but the ones that do can make a significant difference to your borrowing capacity.
This is exactly where an experienced mortgage adviser adds value. Knowing which lender uses which method — and which method works best for your specific financial situation — can be the difference between borrowing $400,000 and $550,000. I'll run your numbers through multiple lender assessments before we decide who to approach.
Common mistakes self-employed borrowers make
Maximising tax deductions too aggressively. Paying less tax is smart — but if your net income looks very low on paper, lenders will struggle to approve you. It's worth talking to your accountant about the balance between tax efficiency and mortgage readiness, ideally 12–18 months before you plan to apply.
Not having two years of clean accounts. If your accounts have been prepared informally or haven't been completed by a qualified accountant, some lenders won't accept them. Getting a good accountant is an investment that pays off when you're applying for a mortgage.
Applying to the wrong lender first. A decline from one bank can temporarily impact your credit score and can make it harder to approach others. Always get advice on which lender to approach before you make a formal application.
What to do now
If you're self-employed and thinking about buying in the next 12–24 months, the best thing you can do is start preparing now. Get your accounts in order, understand what your income looks like on paper to a lender, and talk to a mortgage adviser who specialises in self-employed applications.
That conversation costs nothing and could save you from a lot of frustration down the track.