One of the biggest hurdles for borrowers in 2024 has been serviceability. With interest rates at elevated levels, the borrowing capacity for most people has shrunk as a result of market conditions.
When we start working with a client, we begin by asking a straightforward question: “What is your current income that will support your application?” It may seem simple—after all, it’s the money that regularly hits your account, the funds you use for everyday expenses like your mortgage, bills, and entertainment. But from a lender’s perspective, it can be more complicated than it seems.
If you’re a full-time or part-time PAYG employee with a stable salary, the situation is usually clear-cut. However, things get more complex if your income includes variable components, such as overtime, bonuses, site allowances, travel allowances, or commissions. Every lender evaluates these income types differently. Because they tend to fluctuate from one pay period to the next, banks consider them less predictable.
So how do we determine your true income for borrowing purposes? Depending on the lender, they will typically want to average out your income over a specific period. This could range anywhere from 3 months to 6 months, and sometimes even up to 12 or 24 months, depending on the type of income. The timing of your application can also make a significant difference in what lenders will consider. For example, if you’re relying on overtime, many banks require “Year-To-Date” income evidence over the past three months. If you apply in September 2024, they’ll ask for the full 2023-2024 financial year earnings. But if you wait until October, they’ll only look at what you’ve earned since July 1st, which could drastically alter the amount of income considered. We often see this situation with professionals like nurses, police officers, and construction workers, especially those working on large-scale projects.
For self-employed clients, things get even more complex. We might initially ask for your taxable income, but that number alone rarely paints the full picture. Simply relying on your business profit figures can be tricky, as they don’t always provide a reliable basis for determining borrowing capacity. The financial statements of a self-employed person tell a more detailed story, showing not just income but also expenses and other factors that affect your overall financial standing.
This is why it’s crucial to consult an expert before approaching a lender. Each bank has its own credit policy, and by going directly to a single bank, you could be limiting your options—and in some cases, you may even hurt your chances of securing the best deal. A professional can help navigate these complexities, ensuring that your application is presented in the best possible light to the right lender.