Press releases
Self-employed investors beware
04/09/2009
Self-employed investors about to do their latest tax return should keep in mind unintended impacts that may limit their ability to access finance and lending.
Independent business owners, contractors, freelancers and consultants in the market to buy an investment property need to be mindful of the tax deductions they are making or intend to make.
Often self-employed people have accountants who do a great job in legally minimising their client’s taxable income – exactly what they’re supposed to do.
However, the issue for business owners is that when it comes time to demonstrate their ability to service a loan, they can find it difficult to produce the evidence because their tax returns show low net earnings – usually year on year.
With the withdrawal of no-doc loans and tightening criteria for low-doc loans, this can mean reduced access to funds for self-employed investors.
Additionally, lenders will only allow certain deductions to be added back into your earnings – things like depreciation, director’s salary, one-off capital expenses and extra superannuation payments.
From a lender’s perspective – based on what’s on paper – this shows a reduced capacity to repay the debt and can severely limit how much can be borrowed.
Self-employed people who are considering borrowing to invest in property should plan ahead and weigh up what is best for them financially.
In the current environment there is now much closer scrutiny of a borrower’s ability to service the loan – and consistent business earnings are now more important than ever.
Business owners should be working with their accountant and personal mortgage adviser to ensure they are taking in to account their borrowing capacity when preparing their tax returns, particularly if they plan to access finance over the next year.
As always, talk to your Smartline Personal Mortgage Adviser for more information.
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