01
Current contract or engagement letter, including the rate, the term and any renewal history
Home loans for newly self-employed borrowers turn on one question: how much of a contract rate a lender is prepared to annualise. Your day rate may be well above what your old salary worked out to per day. The assessor is not looking at that rate, but at how many days you will actually bill, how long the arrangement has run, and whether it renews.
Contractors sit in a gap of their own. Some are paid through an agency with tax withheld and look almost like employees. Some invoice a single client through an Australian Business Number (ABN). Some run a company, pay themselves a wage and leave profit behind. Each is assessed differently, and where finalised financials do not exist yet, low-doc home loans assessed on other evidence may be the pathway.
Most of the work is matching your arrangement to a lender that reads it favourably. As Melbourne mortgage brokers, we do that before an application is lodged, because the wrong choice costs you an enquiry on your credit file and several weeks.
Newly contracting and not sure what a lender will count? Call us on 1300 562 696 and we will run the numbers with you first.
How a Day Rate Becomes Assessable Income
A rate is a headline. The assessed figure is what is left after a set of deductions most borrowers never make themselves.
A lender will typically annualise the rate across billable weeks rather than fifty-two, allow for unpaid leave, gaps between contracts and downtime, then subtract the costs the tax return shows. Superannuation you pay yourself, insurance, tools, vehicle costs and an accountant all come out. The result is usually well below the number in your head. A contractor home loan application goes better when you have already done that arithmetic and can explain the gap.
The Two-Year Expectation and the Exceptions to It
Most lenders want two years of self-employed history before they treat the income as reliable. That is the default, not the whole market.
A smaller group will work with twelve months of trading and one tax return. A narrower group will consider six months where you are contracting in the same field you were employed in, at a comparable or higher rate, with the work evidenced. A few lenders will treat a long-running agency contractor as PAYG from the start. Where a finalised return does not exist yet, a low-doc home loan assessed on BAS, bank statements and an accountant declaration can bridge the gap, usually at a lower maximum loan to value ratio (LVR) and a higher rate. The exceptions are real, but each carries its own conditions on industry and evidence, and none of them are advertised.
What to Put in Front of a Lender
A self-employed home loan application is strongest when it answers the obvious questions before they are asked:
02
Invoices covering the period you have been contracting, and the bank statements that match them
03
BAS for every quarter lodged, where registered for goods and services tax (GST)
04
Tax return and notice of assessment for the most recent year available
05
Employment history or payslips from the same industry before you started contracting
06
Business bank statements kept separate from household spending
07
Accountant declaration where the return does not reflect the current run rate
08
Details of every card limit, buy-now-pay-later account and lease, which are counted at the limit
How Loanworx Group Approaches Contract Income
Loanworx Group works with borrowers whose income is strong and whose paperwork is young. We read the arrangement the way an assessor will, annualise it honestly, and identify the lenders whose policy fits the shape of your contract rather than the label on it.
Where the timing is wrong, we say so. A renewal signed, a quarter lodged or a facility closed can be worth more than any rate we could negotiate for you today.
Where This Leaves You
Leaving a salary for a contract rate is not a step backwards, even if the first calculator you tried said it was. Once the rate is annualised the way a lender does it, the arrangement is matched to a policy that recognises it, and the evidence is in one place, the borrowing figure stops being a guess. You can plan a purchase around a real number, and the fact that you invoice instead of drawing a salary stops being the reason you cannot buy.
Read more
How Lenders Read Each Kind of Contract Arrangement
The label on your arrangement matters less than how the income arrives and who bears the risk:
|
Arrangement |
How Lenders Usually Assess It |
Evidence Usually Requested |
|
Agency contractor with tax withheld |
Treated close to pay as you go (PAYG) employment where the arrangement is ongoing |
Payslips, the contract, agency confirmation, employment history |
|
ABN contractor with one main client |
Read as self-employed, though some lenders accept it as PAYG-like where the work is continuous |
Contract, invoices, business bank statements, prior employment in the field |
|
ABN contractor with several clients |
Assessed as a genuine business, with income averaged and expenses reviewed |
Tax returns, business activity statements (BAS), invoices, bank statements |
|
Newly registered sole trader |
Assessed on trading history, which is usually the constraint rather than the rate |
BAS, bank statements, accountant declaration, first tax return where available |
|
Company director paying a wage |
Assessed on the wage drawn, with retained profit considered where the borrower controls the company |
Company financials, tax returns, payslips, accountant comments |
|
Subcontractor in a trade |
Assessed on continuity of work and industry experience as much as on the invoices |
Contracts or work orders, invoices, licences, prior employment history |
Two contractors on identical rates can be treated a year apart in trading history, because one is paid through an agency and the other invoices directly.
When Timing Changes the Answer
Contract income is time-sensitive in a way a salary is not. The same borrower is a different applicant depending on the month they lodge.
A contract with six weeks left reads as a risk; the same contract renewed for another twelve months reads as continuity. A first tax return that lands in October can move you from a narrow panel to a wide one. A quiet quarter in your BAS history, lodged just before an application, can drag an average down for a year. All of it is manageable once you know the sequence.
Mistakes That Cost Contractors Capacity
Four things do most of the damage:
Treating the day rate as the assessed income, then finding the shortfall at pre-approval
Maximising deductions in the first return, which lowers the figure a lender lends against
Applying during a gap between contracts instead of the week after a renewal is signed
Testing several lenders at once instead of matching the arrangement to one that reads it well
Frequently Asked Questions (FAQs)
How long do I need to be self-employed before I can borrow?
Two years is the common expectation, though a limited group of lenders will work with twelve months and a narrower group with six. Which applies to you depends on your industry, your prior experience and what you can evidence, so it is worth checking before you assume you have to wait.
Can a contractor be assessed as an employee?
Sometimes. Where you are paid through an agency with tax withheld and the arrangement is ongoing, some lenders will assess the income much like PAYG employment. Where you invoice through an ABN, most lenders treat you as self-employed regardless of how regular the work is.
Will a lender use my full day rate?
No. It is annualised across billable time, then reduced for leave, gaps and the costs your return shows. The assessed figure is usually lower than the rate suggests, and the size of that gap varies between lenders.
Does having one client hurt my application?
It can. A single client is a concentration risk to a lender, though a long contract, a renewal history and prior employment with the same client can all soften it. Several clients over time generally reads as a more established business.
Does a gap between contracts count against me?
A short gap is normal in contracting and lenders know it. What matters is the pattern: regular gaps of a few weeks between renewals read differently to six months with no work. Being between contracts at the moment you apply is the harder version, which is why timing the application around a signed renewal helps.
What if my tax return does not reflect what I earn now?
That is common in the first year or two. An accountant declaration, current BAS and bank statements can support an alternative documentation pathway, usually with a lower maximum LVR and a higher rate than full-documentation lending.
This information is general in nature and does not take into account your objectives, financial situation or needs. Lending approval, borrowing capacity, rates, fees and loan features are subject to lender assessment and can change. Tax and structuring decisions should be discussed with your accountant. Consider speaking with a qualified mortgage broker or financial adviser before making decisions about borrowing on contract or self-employed income.
Talk to a Self-Employed Lending Broker
Send us the contract, the rate and when you started. Call 1300 562 696 and we will tell you what a lender will count and which ones will count the most of it.
