I’ve discovered a recent conundrum with the lending market for self-employed persons. We all know that the lending market has dried up, which is strangling the property industry. McDonald Jones Homes has indicated that they have had no sales in the past month, purely based on lending.
At one time in history, people started businesses to create wealth. There is a saying that, “no one gets rich by working for another.” This does not ring true when you look at executives in the banks and many of the blue chip companies around Australia. Even Australia Post’s CEO was on a salary $5.6 million. Yes, you can get rich by working for another!
The lenders have now determined to demonise self-employed persons. Meaning many create such a high bar for self-employed persons that it is better to just rent. Moreover, if you are self-employed and need to apply for a low doc loan, you will pay a premium for being lent some money. It is confounding that a lender is willing to accept three payslips from an employee to approve a loan but may not lend to the employer at all.
I recently saw some people pooling their money to purchase a unit. One of the buyers was the boss of one of the others. The vendor had no problems with the payslips issued by the employer to assess the person’s ability to repay the loan. Interestingly enough, the company who issued that payslips was not considered on the same basis. In fact, they were required to pay a higher rate and their income was not accepted.
The brokers and institutions involved indicated that a business can go broke at any time. I laughed, if the business went broke, the payslips be useless. Talk about ticking boxes! Provided you fit into a box you get a loan. It’s not about the banks protection, it’s about the customer’s complying with some guideline put out by APRA or ASIC.
Some people might say that is only small businesses that can fail. Well, your job can be very quickly extinguished. A pay slip does not indicate that you are a high performer and does not look behind it to see if your performance reviews are indicating that you stand to lose the job. Additionally, working for big organisations doesn’t help. Ask people who are working for the banks how they now feel about their job security. I once worked for the government and since 1983, Australia has made smaller and smaller governments, so employment is not secure there either.
Things like payment history, payment of rent and longevity in business, are just a few common sense principles which banks could apply when giving out a loan. Those who are striving for success in their own businesses can’t receive the fruits of their labour. Those employees who benefit from that success can achieve their outcome.
It’s a weird world and it is just too hard to fathom.
This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.
To get in touch with Bailey, please email firstname.lastname@example.org