How he was able to get a tricky self-employed deal over the line
Self-employed borrowers have long posed more challenging to service than PAYG borrowers, but when JobKeeper is then thrown into the mix, the challenge of getting a loan across the line becomes even more complicated for a mortgage broker. But when the going gets tough, the tough get going – as Chris Howitt recently proved.
The Mortgage Choice broker was approached by a long-term cricket buddy and self-employed client who had committed to purchasing a block of land eight months prior without having finance lined up. The person had worked with his father as a tree lopper for 15 years, and during COVID restrictions had needed to access JobKeeper and JobKeeper Boost in order to weather the storm of the pandemic.
According to Howitt, there was only one bank that would accept JobKeeper as assessable income in their servicing calculations. All other lenders on the panel, required the broker to remove any JobKeeper payments from the client’s income as part of the application.
Added to this was the fact that most lenders assessed self-employed borrowers based on two years’ worth of tax assessments. The problem this posed was that the client had taken six months off in the previous year to travel around the country, and so despite having a sizeable amount of savings in his bank account, his income was scant in comparison to the current year’s earnings, which hadn’t been formalised in a completed tax return at the time of application. Despite explaining why the borrower’s income was so low on that previous year, only one bank would consider the application based on the current year’s income – the same one that accepted JobKeeper income.
“All the banks we researched said, no we’re not going to take it,” he said.
Making the situation even more serious, the land was due to settle earlier than anticipated, which meant the client literally had only one choice of lender, or he would stand to lose his $100,000 deposit.
But while the policies of that particular lender suited the deal, the application was declined. The bank advised Howitt that the ABN of the client was only 14 months old – even though he knew the client had been self-employed for 15 years.
“In the end we did an ABN search and it was only registered in March last year,” he said. “It was just something that his accountant never did – he just never registered him.”
Howitt went back to the bank with three years of tax returns showing business income and confirmation from the accountant.
“In the end we put that in, it got approved,” he said. “We had JobKeeper Boost on the tax returns, JobKeeper on the tax returns, so we were able to use that and got it across the line when no other bank would accept it.”
Read next: Using forward projection helped client make $500,000 profit
But the challenge was far from over. When it then came to submit the build loan, Howitt and the client faced another roadblock. The female applicant had been receiving child support from a previous partner and the payments weren’t appearing regularly. The bank flagged there was one month where there was no payment made at all, which posed a major problem according to their policies.
The applicant’s ex-partner worked for a company where payments were made manually. The lack of computerisation meant the employer was paying child support whenever they wanted rather than at the same time every month.
Howitt went back over the client’s bank statements and the agreement on how much child support was meant to be paid. After going through a year’s worth of transactions, he found the reason for the missing payment.
“It worked out there was no payment because they were actually in front by $800,” he said.
When he went back to explain this to the bank, he received a surprising response. Unbeknownst to Howitt, the bank hadn’t used the client’s child support payments when approving the initial land loan because they hadn’t needed to. This begged the question of why they would require them in the construction loan.
Once all of these points were explained, Howitt was able to get the deal across the line.
“The land is settled and the build is just about to start,” he said. “He hasn’t lost $100,000 because he was able to settle on the land - and he was able to put his wife and kids into a property that they own now – in a property that is not far from his parents which is exactly what they wanted.”
He said the client was “absolutely wrapped and his missus was over the moon.”
Howitt was also wrapped, but he said he had so many tricky deals like this come across his table that he was almost numb to the stress involved.
“It’s just another day,” he said.
