The issue isn’t whether Kiwis can service a mortgage; it’s whether their financial story can be backed up with evidence.
For generations, a steady salary was the key to securing a home loan, with regular payslips the paper trail banks relied on to vet your financial viability.
But that picture is becoming less representative of how New Zealanders actually earn, borrow and build wealth.
A growing share of Kiwis earn through contracting, commissions, business ownership, freelance work and other arrangements that do not fit neatly into a fortnightly PAYE payslip. After all, we are a nation of small businesses – 603,549 enterprises at the latest count.
At the same time, people are entering the housing market later, often borrowing more to do so.
More than 134,000 New Zealand homeowners now have mortgages above $1 million, while the average loan size has climbed to $560,000.
For many of these borrowers, the issue is not necessarily whether they can service a mortgage. It is whether their financial story can be easily backed up with evidence.
Same scrutiny, different evidence
A contractor might have reliable recurring work but variable monthly invoices. A business owner may retain profits in a company rather than pay themselves a conventional salary. Someone recovering from an injury may have ACC payments that form part of their current financial position.
Pepper Money, a non-bank lender that takes a more flexible approach to home loans than the traditional banks, reviews each person's unique financial story as part of its assessment process.
“We can take a variety of forms of income that otherwise might not be accepted by other financial institutions, such as consistent commission payments, overtime and ACC,” says Campbell Smith, Pepper Money’s country head for New Zealand.
That doesn’t mean a shortcut around responsible lending checks, however.
Instead of relying solely on payslips, an assessment may consider documents such as completed financial statements, business bank statements, GST returns or other evidence that provides a clear picture of earnings and capacity to meet repayments.
“If a business owner hasn’t completed their financial statements for the year, we can look at bank statements, GST returns and factor those in,” Smith says. “That’s effectively proof of income, so far as we’re concerned.”
Bigger loans, more complex lives
The need for that approach is likely to endure. While property prices have retreated from their 2021 highs, the borrowing commitment required to buy, refinance or renovate a home remains substantial.
Life circumstances are rarely static. Some borrowers who purchased at the height of the market may now be looking to refinance at a higher loan-to-value ratio than a mainstream bank is comfortable with. Others may need funds for maintenance, renovations or family needs – while still having the capacity to service their debt.
“We can look at those scenarios as well,” Smith says. “So long as they can service the loan and all other criteria are acceptable to us, we can help out with higher LVR [loan-to-value ratio] lending than perhaps the mainstream banks would consider.”
The key point, he says, is that flexibility must sit alongside a clear focus on affordability.
“Flexibility doesn't mean compromising on what’s best for the customer. We still take a careful approach when assessing affordability because we want our customers to be set up for success.”
Why good advice matters
For borrowers with a more complex application, a licensed mortgage adviser can be a crucial starting point.
Adviser-originated lending accounts for roughly 60% of all new New Zealand home loans, according to property data platform Cotality. In a survey of 224 brokers, flexible credit policy was rated as the most important lender attribute, ahead of pricing.
That reflects the practical value of having someone who can understand the borrower’s circumstances, identify the relevant documentation and compare options across a panel of lenders.
Pepper Money writes all its New Zealand mortgages through advisers, rather than directly with consumers. Smith says that model is deliberate.
"We always encourage borrowers to speak with a licensed adviser. They can compare options across a range of lenders and help borrowers navigate the process with confidence."
“You’re not just speaking to one financier directly. You’re speaking to a panel of perhaps up to 40 financiers – main banks and non-banks included.”
An adviser’s role is not simply to submit an application. For a contractor, entrepreneur or business owner, it can mean helping translate the reality of their financial arrangements into a well-supported lending application.
“These advisers know what they’re doing. They know how to present the application, and ultimately, their duty is to the customer, not to us,” Smith says.
A more human view of lending
Pepper Money sees itself as a specialist option for borrowers whose circumstances may fall outside the traditional salaried model.
Its customers include first-home buyers, self-employed people, migrant communities and older homeowners seeking to refinance, maintain their property or support family members.
“We understand that there’s a household on the end of that application that’s possibly quite anxious at the time – or, at the very least, quite excited,” Smith says.
A non-standard income, he adds, does not automatically make home lending out of reach. It does mean being prepared to show the full picture – and getting qualified advice about the available options.
As New Zealand’s working lives become more varied, the home loan process needs to recognise that responsible lending is not about treating every borrower identically – it’s about assessing each scenario properly.
Important information: You are protected by responsible lending laws. Because of these protections, the recommendations given to you about home loans are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed.
Any loan applications are subject to the Pepper Money team completing responsible lending checks and considering every customers individual circumstances. Applications are subject to Pepper's credit assessment and loan eligibility criteria and lending limits. Terms, conditions, fees and charges apply. Information provided is factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
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