General Types of Income Used for New Zealand Mortgage Calculations

Today, we’re here to discuss different types of income that you can use when applying for a mortgage in NZ.

【Salary income】

The most frequently used type of income is, of course, salary. In other words, it is what we call PAYE income. You can use 100% of this type of income.

• Permanent contract

Whether you are employed full-time or part-time under a permanent contract, the bank will only need to review the pay slips for the past three pay periods, and if they are consistent, they will be able to use 100% of your salary.

• Casual Contract

If you’re under a casual contract, the policy can be slightly different from different lenders. The average can range from six months to over two years, depending on the bank we use.

• Overtime / Commission / Allowance / Bonus

Most banks typically accept overtime and commission income, and 80% of these earnings can be used. How do banks assess how much overtime and commissions they can use? It’s different from lender to lender, but it’s based on the average in the past 3 or 6 months. Allowance is similar to overtime and commission, but it’s slightly different. Non-taxable allowances are generally not accepted by banks. We must determine if the allowance is extra income. You are not being compensated for what you have spent, it is being given to you. There is more difficulty in calculating bonuses than in others. Bonuses are not accepted by all banks or lenders. It is usually calculated and can be used for 80% of the total bonus if accepted. Some smaller banks, such as TSB and Co-operative Bank, do not consider bonus income.

【 Self Employed 】

The second type of income is self-employment. Typically, income is approved using the financial reports of the previous two years. Occasionally, banks will accept financial reports less than two years old. However, this is very rare. When your business has not operated for two years, it may sometimes be accepted by the bank in exceptional circumstances. If you need a loan, but your business hasn’t reached two years yet, a non-bank lender can help you. There are some loan products designed specifically for you. You can still be considered even if you do not have any financial reports. The non-bank lender may only need your GST return and bank statements to calculate your borrowing capacity. Of course, there are some downsides as well. The fewer financial record you have, the higher interest rate you’ll get from non-bank lenders. In addition, we have several clients who are self-employed but work for a company as contractors. This is a widespread occurrence in the IT profession. If you work for one company but are employed under a contract, your income from the contract should be treated as self-employment income. Therefore, you are required to provide financial statements for the past two years. However, in some cases, some lenders may consider this as PAYE if it’s very stable and you’ve worked for the company for a long time, and your contracts have been renewed multiple times.

【Government Benefit】

Let’s talk about government benefits. Usually, banks will take 100% of your government benefit income, but there are some criteria you have to meet. First, your benefits must be long-termconfirmation to show what benefits amount you will continue to receive once you have purchased the property.

【Child Support】

Child support can also be accepted. Generally, it can be used 100%, but some lenders may require a slight discount. Therefore, the range is always between 80% to 100%. The policy on calculating child support and when you may use it varies from lender to lender. Some lenders will require you to receive at least three times payments, and others may require six months of child support before applying for finance.

【Rental Income】

Local rental income within New Zealand is accepted, but different lenders will have varying policies on shading. Some lenders also apply different shading depending on the purchase or construction date. If you own a home or you are in the process of buying a home and want to rent out a few rooms in the future as a source of income, this is also allowed and will be discounted by the lender, but the percentage of discount varies from bank to bank. Most banks allow you to calculate rental income for up to 2 tenants. This means that no matter how many rooms you have in your house or how many tenants you have, you can only use 2. In rare cases, you can use more than two tenants’ rental income. For example, you can use more than two tenants with The Co-operative Bank and TSB. Main banks are currently limited to two tenants. Another thing to note is if you’re using flatmate or boarder income, most banks have a cap on rental income. Banks will use their defined rent cap no matter how much rent you receive. For example, according to ANZ policy, each room counts up to $150 per week. There are exceptions like Westpac. This cap does not exist. So if a tenant pays you $300 per week, they will use $300 per week.

【overseas income】

We will now discuss the last type of income we usually see, oversee income. There are policies, however, they vary from lender to lender. In most cases, if a lender is willing to accept over incomes, they will only consider income earned through PAYE, your salary income. Some lenders may consider rental income, but only a few. Self-employment income is tough to use if you receive it overseas. Also, overseas income will need to be discounted before it can be used. Additionally, some lenders have policies regarding the treatment of incomes from different countries according to their policies. As an example, if your overseas income is from Australia, you will receive a slightly smaller discount than if you received income from another country.

【Other Income】

Lastly, let’s discuss some frequently asked questions here at Prosperity Finance.

• Uber / Airbnb / Tradme / online trading business

Many of our clients ask us whether they can use any of the income they have received from Uber/Airbnb/Trademe/online trading? Definitely yes. However, these incomes must be treated as self-employment, which means that you must provide two years’ financial reports of your company, which the bank will use to calculate your lending capacity. There is one exception here, which is Airbnb income. Some lenders have particular calculation and review criteria for this type of income. Financial reports may not be required at this institution.

• Support from parents or family

If you receive regular financial support from family members, you are not entitled to use these incomes. Banks or other lenders do not consider this type of income.

• Cash Income

Last but not least, cash incomes. If you receive cash from your employer, you can use it if you can provide tax evidence that you have paid tax on the cash. We hope that this information will be helpful to you. Have you got questions? We’re more than happy to help. Call us at 09 930 8999 to chat with one of our mortgage advisors. At Prosperity Finance, we don’t have a one-size-fits-all solution for your home loan. We look at your case, understand your needs and situation then make a tailored solution for you.   Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.