Home Loan Handbook
Homeowner’s Code
McDonald’s MonopolyIn recent findings from Great Southern Bank’s Smaller Small Business Research, it has been revealed that a significant number of small business owners, approximately 4 out of 10, are encountering challenges in securing home loans. This poses a notable obstacle for entrepreneurs striving to own a home, with 20% of small business proprietors still in the process of saving for a house deposit. The research indicates that 40% of these business owners perceive the self-employed status as a hindrance to homeownership, citing income instability as a primary concern, followed by stringent lending criteria, the ‘high risk’ label from lenders, and the complexity of acquiring necessary documentation.
Notably, millennials within the small business sector, particularly those aged between 27 and 42, face even more pronounced difficulties, with almost half of them expressing struggles in this area. Recognizing the unique challenges faced by small business owners, Great Southern Bank has taken proactive steps to streamline its lending protocols, specifically tailoring them to facilitate a more straightforward home loan approval process for sole traders.
According to insights from Jacole Davies, a mortgage broker specializing in assisting self-employed clients, lenders primarily seek consistency in income, a requirement that can be particularly demanding for business owners whose earnings fluctuate. Davies emphasizes the importance of demonstrating stable income over the past two years as a fundamental starting point for all small business owners seeking home loans. Furthermore, she advises entrepreneurs to prioritize paying themselves adequately and regularly, as a steady income stream signals financial stability, thus enhancing borrowing potential.
Another crucial tip highlighted by Davies is the need to reduce personal debt before applying for a home loan, as this can significantly impact one’s debt-to-income ratio. Contrary to common misconceptions, taking out additional loans, such as car loans, can actually lower one’s serviceability and hinder credit scores. Davies stresses the significance of meticulous organization of financial paperwork, recommending the preparation of essential documents like tax returns, Business Activity Statements (BAS), and financial records. Additionally, she underscores the importance of leveraging addbacks, which are expenses that can be included back into an applicant’s income for assessing mortgage serviceability.
Great Southern Bank has also revamped its lending policies to better support small businesses, especially sole traders, by simplifying the documentation required for home loan approvals. The bank’s Senior Manager Broker Performance, Brendon Prior, highlights these enhancements, emphasizing a more pragmatic approach in evaluating consistent income for sole traders. Moreover, Great Southern Bank recently introduced the Business+ app, designed to provide small businesses with banking and financing solutions, including features like bank feeds to accounting platforms and a free invoicing tool, aimed at streamlining financial management processes for entrepreneurs.
The Smaller Small Business Research conducted by Great Southern Bank in collaboration with The Clever Stuff sheds light on the challenges faced by Australian small businesses with fewer than 10 employees. The insights gathered underscore the need for tailored financial solutions and support mechanisms to assist small business owners in achieving their homeownership aspirations.
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