iscover
iscover 
As inflation continues to moderate, fuelling speculations for the Reserve Bank of Australia (RBA) to deliver an early rate cut in February, brokers could potentially see a surge of heightened confidence among self-employed borrowers.
Speaking to Broker Daily, branch principal and mortgage broker at Yellow Brick Road Earlwood, Effie Nicol, said self-employed borrowers may feel more confident about their borrowing options with potential rate cuts on the horizon.
“Lower rates could create opportunities to refinance and improve cash flow, but it’s important to make sure they still meet lender criteria, as this remains a key factor in accessing finance,” Nicol said.
Similarly, founder and principal broker of GB Financiials, Niti Bhargava, told Broker Daily that “self-employed borrowers are likely to feel a renewed sense of confidence in their borrowing capacity” in the wake of easing economic headwinds.
“Historically, this segment has faced more challenges in securing loans due to fluctuating incomes and stricter lending criteria,” she said.
“However, with a more favourable interest rate environment, we can anticipate a shift in attitudes, with self-employed individuals becoming more optimistic about their ability to access competitive mortgage products.”
Ryan Manson, finance broker at Manson Financial Services, said reducing costs of borrowing, particularly around interest rates, should "encourage self-employed individuals to take on additional debt to facilitate purchases, new business acquisitions or simply to inject capital to allow for further growth in their existing businesses".
"This assumption is based on the specific businesses that will not be subject to areas where business income has been reduced due to spending slowdowns. Any business subject to inflationary pressure such as hospitably, will unlikely be looking at taking on additional debt," Manson added.
Meanwhile, owner of Mortgage Choice Berwick, David Thurmond, foresees some difficulty among SME borrowers.
“Small to medium businesses would have been impacted the most by the rapid rise in rates over the past two years, as they would have had less savings to help carry them through this difficult period,” Thurmond said.
“So, I expect self-employed applicants may find it more difficult to get finance over the next couple of years as their lower earnings/profit start to show up in their end of year financials.”
Mortgage broker and founder of Atelier Wealth, Aaron Christie-David, said attitudes will start to improve as the "pressure valve comes off".
"Self-employed borrowers will probably start to get that confidence back in their businesses [and] knowing that there's relief around the corner, consumer confidence is going to pick up, and that feeds into business confidence, which then means things like recruiting and expanding their business starts to come into the discussions a little bit more."
How should brokers prepare?
Naturally, brokers are gearing up in anticipation of changing economic conditions and strategising how they can best help their self-employed clients.
Nicol said brokers “need to stay on top of self-employed lender requirements and proactively reach out to their clients”.
“By being prepared with tailored solutions and guiding the clients through the steps to meet lending criteria, brokers can simplify the process and help build confidence,” Nicol added.
“This pro-active approach ensures self-employed borrowers feel supported and ready to make the most of new opportunities.”
Thurmond recommended that self-employed clients meet as early as possible with their broker and accountant to “strategise how to best tackle the next couple of years”.
“All lenders have a different policy on the income history they rely on for servicing, so finding a lender that just focuses on the latest financial year might help (rather than the average of the last two years as most lenders prefer),” he said.
“Some lenders will also rely solely on BAS or Business Transaction Statements to help determine servicing.”
According to Manson, self-employed borrowers are more comfortable with risk and generally push themselves harder to build wealth by nature.
He added: "Having proactive strategy discussions and ensuring the management of the loan process is smooth and simple, allows time poor business owners the energy to focus on the next project and wealth creation initiative."
In order to prime themselves to begin actually being talking to self-employed borrowers, brokers should be adept in knowing policy surrounding self-employed borrowers instead of "automatically defaulting to a low doc type of loan", Christie-David said.
"There are so many major banks and even second-tier lenders that have some incredible self-employed policies," he added.
Bhargava said brokers have a pivotal role to play in the event of moderating inflation and reduced interest rates and, in order to best position themselves, she outlined the following areas for brokers to focus on:
1. Education and awareness: Many self-employed borrowers may not fully understand how these economic changes can positively impact their borrowing potential. By providing clear, tailored advice, brokers can help them see the opportunities that lower rates present.
2. Flexible solutions: Offering a range of flexible loan options, such as offset accounts and interest-only periods can cater to the unique needs of self-employed clients who may experience income variability.
3. Building relationships: Establishing trust is crucial. By demonstrating a deep understanding of their clients’ business and financial circumstances, brokers can provide more personalised and effective solutions.
4. Advocacy: Brokers should act as advocates for self-employed borrowers, helping them navigate lender requirements and presenting their financials in the best possible light to secure favourable loan terms.
Could we see a rise in low-doc lending?
As cost-of-living pressures persist, it begs the question of whether or not low-doc lending will see an increase in prominence over 2025; however, Nicol believes that this will not be the case.
“I don’t think we will see low doc lending take off more in 2025, especially with the ongoing cost-of-living pressures,” she said.
“While some self-employed clients may still need alternative documentation, the potential for rate cuts could see more people qualify through traditional channels.
“Ultimately, it’s about assessing each client on case-by-case basis, understanding their needs and offering the right solutions based on their individual circumstance.”
Thurmond explicitly said that he hopes that low doc lending and, more specifically accountant-declared income, does not become more popular.
“I decided a few years ago to no longer write these loans because the cost to clients is significant (rates/fees) and clients on these loans rarely revert back to mainstream lending because it’s hard to dig yourself out of a deeper hole,” he added.
On low doc loans, Manson stated: "Low Doc loans have a space in the market but generally are only required when proactive planning has not been undertaken. Low Doc loans have higher interest rates and fees, as such, clients need to justify whether the urgency will derive sufficient financial benefit."
"Furthermore, if a self-employed client is not deriving sufficient income to source a full doc loan, we would question whether it is the right time for the client to be looking at taking on additional debt," he said.
Additionally, Christie-David said that not every self-employed client is fit for the low doc model and that it "would have run its course" in 2024 when conditions were "particularly tough".
"I think where I'm seeing the challenges for self-employed borrowers is probably tax debt... what we're going to see is more accurate financials, because all those government stimulus packages have all wrapped up.
However, Bhargava told Broker Daily that there is a possibility of a resurgence in the prominence of low-doc lending throughout 2025.
“As cost-of-living pressures persist, many self-employed borrowers might find traditional loan documentation requirements challenging. Low doc loans offer a more accessible pathway, provided they are offered responsibly and with the necessary safeguards in place,” Bhargava concluded.
“Brokers must remain vigilant, ensuring they guide clients towards solutions that are sustainable and suited to their long-term financial health.
“By staying proactive and adaptive, brokers can play a critical role in supporting self-employed borrowers through these evolving economic conditions.”
[RELATED: Major bank shifts cash rate and inflation forecast]
ISCOVER 
