Self-employed Struggle to Secure Mortgages

MEDIA RELEASE

Tuesday 27 August 2019 - A rising number of New Zealanders are struggling to provide banks with the necessary financial records to secure basic financial products such as mortgages, as workers opt for the self-employment lifestyle.

Self-employment, independent earning or taking part in the gig economy is on the rise, with over 17% of New Zealand’s population being currently self-employed according to World Bank measurements, and Stats NZ reporting that this equates to more than 300,000 workers in New Zealand.

Mortgage adviser Craig Pope says he is seeing a rise in the number of people independently earning, and although this lifestyle may offer increased freedom and flexibility, it’s important to keep in mind what will be required from the banks when going to secure basic financial products, such as a mortgage or loan.

“The challenge for independent earners is they often don't have up to date financials, making it difficult for a bank to make a proper assessment. They may be newly self-employed and haven't built up a long enough track record. On the whole, for a mortgage application for example, banks prefer a good two year financial history. If the deposit or equity is more than 20%, then one full year of financials may be sufficient,” says Craig Pope, Pope & Co. Mortgages.

The growing number of independent earners in New Zealand has seen a rise in products and services catering for these new ways of working. James Fuller founder of Hnry, says the creation of New Zealand’s fastest growing tax agent, was an attempt to make life easier for independent earners as he had experienced the challenges of contracting in the past himself.

James Fuller, CEO of Hnry, says he is seeing more people from all walks of life from midwives, technical consultants, to lawyers taking up the opportunity to earn income independently, and those people shouldn't be burdened by being isolated or marginalised from financial products.

“Ask any bank or mortgage adviser who the most difficult clients are – it’s those who are self-employed, and it’s not because they don’t earn good money. It’s because the way credit providers assess applications does not easily accommodate ‘non-standard’ income. Often it’s the self-employed who pay higher interest rates on credit due to this fact.”

Whilst this problem can be overcome through good cash flow management and determination, James Fuller says often independent earners are focused on doing what they do best – earning.

“The majority of Kiwi’s who are independent earners often miss out on the benefits the rest of the population enjoy interacting with financial services – specifically seeking credit, and investment opportunities.

Some of the banks have begun to understand more about the types of independent earners (such as midwives, business analysts, creatives) but we still have a long way to go as an industry. A large number of self-employed earn a consistent income but freelancing and contracting is still viewed as more risky and it can be tough to gain access to mortgages, loans and insurance, purely because an independent earner doesn’t have a permanent or salary job.” says James.

So how does a self-employed person secure financial products such as loans, mortgages and insurance? The reality is, that all types of earners need to show financial records and be prepared.

Craig Pope says it’s about knowing what information the banks will request and being prepared well in advance.
For a mortgage application banks prefer a good two year financial history and this is unlikely to change in the near future.

“A service like Hnry could make it much easier for independent earners to provide good financial records to assist with a mortgage application. Always speak with a trusted mortgage advisor who can help you understand the process and what information you will need to have on hand,” says Craig Pope, Pope & Co. Mortgages.

Hnry, winner of the Emerging Gold Service Award at the Wellington Gold Awards 2019, and a finalist in the New Zealand Hi-Tech Awards 2019 is a an-end-to-end tax agent service, that uses cutting-edge automation to calculate, pay and file all tax obligations, charging just 1% of the self-employed income (capped at $2,000 p/a). Hnry’s mission is to give freelancers, contractors and self-employed their freedom back, by being their trusted financial sidekick - enabling them to get back to doing what they love. You can find out more at https://hnry.co.nz/.

ENDS

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