Refinancing When You're Self-Employed

Why it's harder than it was the first time

A new lender treats a refinance as a new loan. If your income now comes from a business, they assess that business. Your current bank, by contrast, doesn't need to reassess you to roll over a fixed rate. So the comparison isn't always "which rate is lower". Sometimes it's "can I qualify elsewhere at all right now".

What lenders ask for

• Two years of financial statements prepared by an accountant, with tax returns. Some lenders accept one year if you worked in the same field before going out on your own.
• Inland Revenue summaries showing your tax is filed and paid, including GST and provisional tax.
• Business and personal bank statements, usually three to six months.
• For newer or fast-changing businesses, recent GST returns or management accounts to show current trading.

How they read the numbers

Most lenders average your last two years of income. If the latest year is lower, they usually take the lower figure. If it's much higher, some will still average it down. They add back certain non-cash or one-off costs, such as depreciation, and interest on debts being refinanced.

The awkward truth is that accounts prepared to minimise tax also minimise borrowing power. If you're planning a refinance next year, have that conversation with your accountant before the accounts are finalised, not after.

Timing

Apply soon after your annual accounts are done, when lenders can see fresh figures. An application in February relying on accounts from the previous March invites questions about how trading has been since. If tax is overdue, sort out an arrangement with Inland Revenue first. Unpaid tax is one of the quickest ways to a decline.

If full financials don't tell the story

Some non-bank lenders offer alternative-documentation loans, assessed on bank statements, GST returns or an accountant's letter. They cost more than bank lending and suit people whose real income is sound but whose paperwork hasn't caught up. Treat one as a bridge to bank lending, not a destination. More on that in getting a mortgage with one year of self-employment.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.