How much does a bank think you earn?

One of the biggest challenges across the board in 2024 has been serviceability. Rates are sky high, so everyone has been able to borrow less as a result of the market conditions.

So, we ask our client a simple question, what are you currently earning to support the application? It shouldn’t be that complicated, it’s the money that hits your account on a regular basis. You know, you use it to pay the mortgage, bills ,entertainment expenses etc. But a bank may not always see this so clearly. 

If you’re a full/part-time PAYG employee, and earn only a regular wage, then there is little to think about. However the clients I am speaking to here are the ones with allowances. Think, overtime, bonuses, site allowance, travel allowance or commissions to name a few. Every bank will look at this additional income differently. As this income is usually variable from one per pay period to the next, they are considered more uncertain forms of income.

So what do we need to do to work out what you earn. Depending on the bank we need to work out the average earnt over a select period of time. Lenders range from 3 to 6, or even 12 or 24 months depending on the type of income. This also means the time of the year you look to submit an application could drastically change what can be used. For instance, when relying on overtime, usually a lender would need to see 3 months of “Year-To-Date” evidence. Say you apply on September 10^th 2024, they would want to see the full financial year of 2023-2024. However, once we hit October 1^st, it would be based on what you’ve earned since July 1^st. We see this example in lots of roles like nursing, police and other essential services. Also, construction is a big one, especially if you are on the big build jobs.  

Self-employed is a different story again. We usually ask our client what their “Taxable Income” was. But this doesn’t give us the full story, in fact it can be far from it. Even focusing on the profit figure in your business can be very difficult to rely on when we are working out how much you can borrow. Self-employed financials tell a story about the source of the income, the expenses, and how it came to be.

This is why it is so important to consult with an expert regarding where best to place you, as you could be hanging yourself out to dry by approaching banks directly, which are limited to a single credit policy.