I speak to a lot of clients every day, and one of the biggest surprises for them is finding out that two people on the exact same salary can walk away from the same bank with very different amounts they’re able to borrow. It’s not about how much you earn. It’s about how you earn it, and that’s one of the most misunderstood parts of the whole process for first home buyers.
The Basic Principle: Cash Flow, Not Headline Income
Here’s the thing: banks aren’t just multiplying your salary by a number. They run what’s called a debt servicing calculation. It looks at your usable income, takes away your living expenses and any existing debt commitments, then checks whether what’s left comfortably covers your mortgage repayments, including at a stress tested interest rate that’s higher than what you’d actually pay. That stress rate is there so you don’t end up stretched if interest rates rise, which they do from time to time as part of the normal cycle. What I find most clients don’t realise is that the type of income you earn changes how much of it counts as usable in that calculation, and that’s really where most of the difference between borrowers comes from.
PAYE Employment Income
This one’s the simplest. If you’re on a base salary or wages, it’s generally counted in full, as long as you can show your recent payslips (usually the last three) and bank statements that match, showing the salary landing regularly. If you’ve just started a new PAYE role, some lenders want to see it’s ongoing and stable before they’ll count it at full value, especially if you’re still on probation. This can depend on whether it’s a new role in the same industry or a completely different one from what you were doing before. When you’re working with an adviser, we can usually tell you straight away whether your income is likely to be accepted in full or shaded by a percentage.
Overtime, Commission, and Bonuses
These are usually accepted, but rarely at face value. Most lenders will use somewhere around 80% of your overtime or commission income, averaged over a recent period (commonly three to six months, sometimes longer), rather than taking your best month as the benchmark. Bonuses are treated even more cautiously. Where they’re accepted, expect them to be shaded and averaged over one to two years rather than counted at the most recent figure. This is exactly where a good adviser earns their keep, because we know each lender’s policies and which one is likely to work best for your situation.
What this means in practice is that income which looks strong on a payslip can look a lot smaller once a bank applies its own shading rules. If a decent share of your income comes from variable pay, it’s worth understanding how your specific lender treats it before you assume a number is achievable.
Self-Employed and Contractor Income
Self-employed income is assessed on net profit, not turnover. This is something I see catch clients out more than almost anything else. A business can have strong sales but high costs or aggressive tax deductions, which means it shows a modest profit on paper, and that’s the number the bank works from, not the revenue you’re actually bringing in. Most lenders want two years of financial statements and matching IRD documentation, and they might average your net profit across those two years, sometimes using the lower of the two if income has recently dropped. That’s not always the case though, and a good adviser will know which lenders are more lenient on this than others.
Contractors sit in a slightly different category depending on how they’re set up. If you’re invoicing through your own company, you’ll generally be assessed as self-employed, even if you work for a single client on a regular, fortnightly paid basis. Some lenders will look past the structure and assess the underlying income more like PAYE if the arrangement is genuinely stable and well documented, but this varies a lot between banks. It’s one of those areas where using the right lender for your circumstances makes a real difference to the outcome.
Company directors add another layer. Income earned through a company can come as a shareholder salary, dividends, drawings, or profit retained in the business, and different lenders treat each of these differently when working out what actually counts toward your servicing.
Rental Income
Rental income is generally counted, but it’s shaded to account for vacancies, rates, insurance, and maintenance costs the property will incur. Commonly this sits somewhere between 65% and 80% of gross rent, with the exact figure set by each bank’s own credit policy rather than any single industry standard. If you’re relying on rental income from an existing or planned investment property as part of your servicing, I’d always check the shading approach with each specific lender rather than assuming full rent will be counted.
Boarder Income and Other Less Common Sources
Income from boarders, flatmates, or other less conventional arrangements can sometimes be included. For new homeowners, banks generally only need a declaration of intention, while for existing arrangements they’ll usually want to see a consistent history and clear documentation before counting it. The same applies to overseas income, which is typically converted to New Zealand dollars and then discounted further, often to somewhere around 80% to 90% of the converted figure, to account for currency and documentation risk. Less stable currencies can attract a steeper discount again.
Why the Debt-to-Income Ratio Matters Too
Since 2024, Reserve Bank debt to income (DTI) restrictions have applied to most residential lending in New Zealand, generally capping most standard lending at six times gross annual income. This sits alongside a bank’s own servicing calculation, not instead of it, and it’s reviewed periodically by the Reserve Bank’s Financial Policy Committee. A higher DTI won’t automatically get you declined, but it reduces the room a lender has to work with, particularly when combined with variable or shaded income sources. Lenders are allowed a certain amount of lending above the standard restrictions, and every month they let their adviser partners know how much capacity they have left.
Why This Matters for Your Preparation
The gap between your headline income and your assessed income can be significant, especially if you’re self-employed, commission based, or relying on rental income as part of the picture. I’d much rather clients understand this ahead of time than discover it partway through a pre-approval application, and that’s exactly the kind of gap the NextMove Readiness Score is designed to help you identify early. A strategy session with our affiliated adviser is a great next step in shaping your home buying journey.
The Bottom Line
Income isn’t one number to a bank. It’s a collection of different sources, each treated with its own rules, discounts, and evidence requirements. Two people on the same gross income can end up with very different borrowing outcomes purely because of how that income is structured. Knowing how your specific income type is likely to be treated, and getting the right documentation ready in advance, puts you in a stronger position before you ever sit down with a lender.
Take the Next Step
Want a clearer picture of where you stand? Take the NextMove Readiness Score for a free assessment, or explore our Education Hub for more guides on preparing to buy.
You can also reach out directly at info@nextmoveproperty.co.nz and we can point you in the right direction.
References
Reserve Bank of New Zealand (Debt-to-income restrictions): rbnz.govt.nz
Become Wealth (Debt-to-Income Ratio in New Zealand): become.nz
Opes Partners (Self-employed mortgage income calculation): opespartners.co.nz