How to buy a home in Queenstown as a self employed business owner

If you run your own business in Queenstown, you already know the local property market doesn't wait around. What you might not know is that being self-employed doesn't have to slow down your home loan application, as long as you understand what lenders are actually looking for.

We work with a lot of self employed clients across Queenstown and Central Otago, from tourism operators to tradies to hospitality owners…and the same questions come up again and again. Here's what you need to know.

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Do lenders treat self employed applicants differently?

Yes, but not in the way most people assume. Banks aren't less willing to lend to self employed borrowers - they just assess their income differently. Where a buyer who is on salary or wages can show a couple of payslips, lenders need to see a clearer picture of how your business performs over time. That just means more documentation, but it doesn't mean a lower chance of approval.

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What documents will you need?

Most lenders will ask for:

• The last two years of financial statements for your business
• Two years of personal tax returns (IR3s)
• Recent business bank statements
• An accountant's letter confirming your income and business structure, if requested
• A breakdown of your business structure. Eg. sole trader, partnership, or company

If your accounts aren't finalised for the most recent year, some lenders will still work with an interim set of accounts alongside your accountant's projections, but this varies significantly between banks - which is where having an adviser who knows each lender's appetite makes a real difference.

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How do lenders calculate your income?

This is where things get a little more tricky than for a salaried buyer. Lenders typically look at your average income over the last two years, rather than your most recent (and hopefully best) year alone.

Lenders vary how they look at your income - some will average, others will consider your most recent year along with good supporting information justifying the difference in income if it is significant.

If your income has grown significantly, some lenders will favour the most recent year or an average, but this depends on the bank's policy, so it's worth checking before you assume a strong recent year fully counts.

Lenders will also often add back in certain non-cash or one off expenses (like depreciation) when calculating your true income, which can make your borrowing position stronger than your net profit figure alone suggests. This is a detail many self employed buyers don't realise applies to them.

Something else important to understand, is that it’s not just about what you currently pay yourself - we can only consider what you could have paid yourself, i.e. net profit. Therefore you do not need to increase your salary for the sole purpose of lending.

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What if your income varies month to month?

Seasonal income is a familiar story in Queenstown, particularly for tourism and hospitality operators. Lenders understand seasonality exists here, but they'll still want to see that your business generates enough income across a full year to support the loan and will take into account the highs and lows rather than assessing a single quiet month. 

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How much deposit will you need?

The deposit requirements themselves aren't different for self employed buyers, you're still looking at the same starting points as any other buyer:

• 20% for an existing home as an owner occupier (with some lenders and schemes allowing less)
• Often 10%+ for new builds, sometimes less depending on the lender
• The Kāinga Ora First Home Loan scheme (5% deposit) is available to self-employed buyers too, provided you meet the income cap and eligibility criteria
• Case by case there can be opportunities to purchase your first home with a 5% deposit without qualifying for the First Home Loan.

What can shift is the confidence a lender has in approving a lower deposit loan. And here’s where a longer, more stable trading history generally works in your favour. If you are a newer business, you might run into a little more trouble getting approved for a lower deposit loan. 

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Common reasons self employed applications get declined and how to avoid them

• Inconsistent or late filed tax returns. Lenders want to see you're up to date with IRD, not just that you're profitable.
• Mixing personal and business expenses, which makes it harder for a lender to work out your real income.
• Not accounting for tax obligations when working out what you can actually afford to repay.
• Understanding any liabilities or loans in the business are added to your personal financial position when you are considering purchasing a home 
• Applying with only one lender's criteria in mind. This is the big one, every bank assesses self-employed income slightly differently, so being declined by one doesn't mean you'll be declined by all of them (we can help with this!)

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Being self-employed in Queenstown doesn't mean fewer options, it just means a different process, and one where the right advice matters. Having a good accountant and mortgage advisor on your team can make all the difference to the bank saying yes or no. 

Getting your finances organised early, understanding what can have an impact, and knowing which lenders are the right fit for your situation can make the difference between a smooth approval and or a declined application.

If you're self-employed and thinking about buying in Queenstown or Central Otago, get in touch with the Loan Market Queenstown team. We'll walk you through exactly what your numbers mean to a lender before you apply.

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