In the past 12 months Westpac, St.George and CBA have announced that instead of requiring self-employed borrowers to submit two years’ worth of financial records and tax returns, they would only require one year of financial records as income verification.
Further, Westpac last week announced it would increase its lending capacity percentage to 90 per cent of the property value for self-employed borrowers (up from 80 per cent), in line with a similar change announced by CBA earlier this year.
According to the Mortgage and Finance Association of Australia (MFAA), this is “a clear sign of the banks’ intent to increase lending to more SMEs for property purchases”.
Joel Wyld, member of the MFAA said: “In the past few months we have witnessed a change in this space, which is expected to surge in the next 12 months as more SME owners become aware of the changes.
“Several business owners still don’t know about the more lenient lending criteria. There are over two million SME business owners across Australia. It is pleasing to see that some of the major banks have relaxed their property rules for this demographic.”
Mr Wyld added that he thought the new criteria would bring more SMEs to market, as “in the past, many SME owners had to settle for low doc loans for a two-year period, which … deterred them from purchasing property”.
He added: “The number one piece of advice given to SME owners when applying for a property loan is to ensure financials are up-to-date. Inaccuracies in financial records and book keeping will delay the settlement process and could ultimately determine if the loan application is accepted or declined.”
According to Mr Wyld, there is an increasing trend to establish property trusts and partnerships using property as a vehicle for SME owners, however, he warned that both of these structures “have a place in the market but care must be taken when assessing income of a business if multiple owners are involved”. He added that in these instances, legal advice would also be useful to minimise issues in future years.
He concluded: “The time is now ripe for SME owners to capitalise on the new lending rules to secure either a dream home or business premise.”
[Related: Banks fail govt on small business credit]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.