Self-employed individuals are struggling to secure mortgages, according to end-to-end tax service Hnry.
As self-employment lifestyle becomes more popular, more New Zealanders are struggling to provide banks with the necessary financial records to secure basic financial products such as mortgages, loans, and insurance.
World Bank measurements indicated that self-employment, independent earning, or “gig economy” is currently on the rise – with over 17% of the country’s population being currently self-employed. Stats NZ explained that the percentage equates to more than 300,000 workers in the country.
Craig Pope, a mortgage adviser at Pope & Co Mortgages, commented that although self-employment lifestyle may offer more freedom and flexibility, it may be harder to secure financial products.
“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,” said Pope.
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James Fuller, chief executive officer of Hnry, explained that a large number of self-employed earn consistent income but freelancers and contract workers are seen as riskier customers as they don’t have a permanent or salary job – making it harder for them to gain access to mortgage, loans, and insurance.
“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,” Fuller said.
Pope advised self-employed individuals to find out the requirements banks usually ask for and prepare them well in advance. For mortgages, banks usually refer a good two-year financial history.
“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,” Pope concluded.