With the cost of borrowing so low, banks are seemingly willing to loan to anyone who can service a debt. So why are self-employed people on decent incomes finding they have to jump through so many hoops?

There are a lot of juicy perks that come with being self-employed. It can be flexible, varied and, within the right industries, very lucrative. However, for many independent earners, when it comes to applying for a home loan, the benefits abruptly end and the self-employed status suddenly becomes a burden.

This was the case for Eloise Page, a self-employed business analyst who went through a “nightmare” with her former bank when she tried to apply for home loan pre-approval. Despite providing evidence of consistent income well over $80,000 per year for the past three years, Page says she was required to show future contracts with proof of the following year’s income – a near impossible task for someone who makes a living on short-term contracts.

“Honestly, it was extraordinarily frustrating,” she says. “I tend to take short term contracts (three-to-four months) and will do two or three of these a year. I average around, more or less, the same income each financial year. My income is very reasonable, even though I take about three months of the year off, give or take.

“Despite the documentation supplied showing that I was earning about the same year-on-year, I was told that this only describes my past and the bank could not have any confidence in my future. Providing a contract for the year to come makes no sense in my situation.”

Page was required to supply completed IRD documentation in order to prove her financial history, she says. After spending hours on the phone to IRD trying to locate the documents, she asked her accounting service to help and was told the forms no longer existed. Her accounting service then offered to provide the bank with something similar, but this was deemed unacceptable, she says.

“The thing that was really surprising is that there were no points for loyalty,” she says. “I’ve been a customer with the same bank for almost all of my life … There was no sort of recognition they’d actually seen our past for a good period of time to understand how qualified we were to pay off a mortgage.”

Unable to make any progress, Page contacted her accounting service, HNRY, which suggested she try another bank where she might have better luck. She was put in contact with someone at ASB who specialised in self-employed applicants and she provided the exact same information about her earning history, contractual work and upcoming three-month holiday – which she had put aside money for. After she had explained her situation, the account manager decided that she was capable of servicing a mortgage.

“We were able to be completely up front with [the account manager] and when my contract came up, as expected, at the end of 2020, she got in touch to ask what that meant for us and our situation. I made clear that my contributions to the deposit amount would cease and I would seek new employment after a couple of months’ break.

“We secured our home a couple of weeks before I finished work and settled a month after I started a new contract.”

Even as the number of people who are working and earning a viable living as self-employed contractors grows, the extra scrutiny on self-employed income persists. Even when their incomes are high, the absence of a permanent contract can mean they are viewed as more volatile. 

Freelance audio engineer Mark Corbett encountered difficulties when he applied for a home loan last year. “Being a freelance gig economy worker during Covid times made it a bit tricky,” he says. “Especially as I didn’t have my financial things particularly in order. The bank looked at our spending habits, our debts and our savings.”

However, he says he dealt with a mortgage broker who was able to collect everything from his records and put together a proposal to the bank. “My line of work made them want more specific information but in the end the mortgage broker made our case and we were successful in getting our finances together. I recommend for anyone in a freelance position like me to get themselves an accountant. To help get their information together; things like profit and loss statements.”

James Fuller, founder and CEO of HNRY, which provides accounting services for independent earners, says he’s seen an explosion in the number of people taking on gig work in the past year. Many of his customers have struggled with bank finance in the past, mostly because the outdated policies do not reflect the changing nature of the workforce, he says.

“They find it very difficult because of the fact that some of the banks don’t necessarily understand the way people are working these days. I think a lot has changed in the last few years in terms of people’s earning patterns, but I think some of the banks have found it a bit difficult to get up to speed. A lot of the role that we play is to try and help people understand what the self-employed or independent-earner economy looks like and to try to help banks understand that there are different types of independent earners out there, and they shouldn’t be seen as being any less bankable than anybody else.”

Fuller says the argument that permanent salary earners have safer jobs and more secure income than independent earners was negated by the Covid-19 pandemic, which saw many employees of established companies lose their jobs.

“I mean, one thing that we all learned in the last 12 months is that there is no such thing as a permanent job. This sort of traditional view of self-employment, which some people talk about as being ‘lumpy’ income, doesn’t actually tend to be true when you look at people’s income over the course of the year. We’re seeing self-employed people earn more and more each year than they were the past year. It just comes from slightly different sources,” he says.

“Because they have to constantly depend on themselves to earn, they’re in a position where they should be seen as being more bankable. They are in a position where they can’t be complacent about their income, and they actually need to go out and gain new clients and gain new work.”

Follow When the Facts Change, Bernard Hickey’s essential weekly guide to the intersection of economics, politics and business on Apple Podcasts, Spotify or your favourite podcast provider.