For the 2023–24 rate cycle, self-employed borrowers chasing construction finance have been pushed into a corner neither the Reserve Bank nor APRA has expressly addressed. The cash rate has sat at 4.35 per cent since November 2023. APRA’s serviceability buffer of 3 percentage points over the loan product rate has been left untouched. Meanwhile, non‑bank lenders—Pepper Money, La Trobe Financial, Liberty, Resimac, Bluestone, Brighten and a handful of smaller players—review their construction‑loan books every quarter and quietly trim exposure. The effect is immediate for sole traders and company directors who depend on an accountant’s letter to verify income. Where a low‑doc construction loan in December 2022 might have sailed through at 80 per cent LVR with an accountant‑declared figure of $130,000, the same loan in June 2024 is likely to be capped at 70 per cent LVR, assessed on a 5‑year average of that income, and priced at 90 basis points above the standard alt‑doc rate.
The tightening did not arrive through a single regulatory edict. It is a cumulative response to rising arrears in the non‑bank sector, higher construction‑cost blowout risk, and internal modelling that shows a self‑employed applicant relying solely on an accountant’s letter has a 2.3 times greater probability of liquidity stress during the construction phase than a PAYG borrower with a fixed‑price contract. In this environment the accountant’s letter is no longer a rubber‑stamp accessory. It is the axis on which the entire credit decision turns. Every sentence the accountant writes—or omits—directly affects the lender’s debt‑to‑income ratio calculation, the LVR ceiling, and the fee structure. A letter that merely states “Mr Smith is self‑employed and earned approximately $150,000” will be rejected outright by Liberty and will trigger a cash‑out restriction with Pepper. The market has moved; the letter must move with it.
Why Lenders Demand an Accountant’s Letter for Construction Loans
Construction lending introduces a risk profile that standard purchases do not carry. Funds are released progressively against builder invoices, the security property is incomplete and often worth less than the loan balance until practical completion, and the borrower must continue to service the debt while often paying rent elsewhere. For a self‑employed applicant, the lender has no employer to call, no group certificate to file, and no predictable pay cycle. The accountant’s letter becomes the single most influential document in the approval chain.
The Construction Loan Risk Premium
A construction loan is, from a credit perspective, a series of short‑term advances secured against a depreciating asset. If the borrower defaults at slab stage, the lender holds a partially built house on a block of land that may recover 60 to 65 per cent of the funds advanced after a forced sale. Non‑bank lenders price that risk explicitly. Pepper Money’s Product Guide (January 2024, p. 34) notes that construction loans attract a risk loading of 0.50–0.75 per cent above the equivalent purchase loan, and that the loading increases when the borrower’s income is verified solely by an accountant’s letter. Brighten’s Low Doc Guide v4.2 (December 2023) applies a maximum LVR of 75 per cent for construction loans using an accountant’s letter, down from 80 per cent for a standard alt‑doc purchase. The market is telling borrowers: if income cannot be cross‑checked against BAS or bank statements, equity must fill the gap.
Self‑Employed Income Verification Gaps
A self‑employed builder, electrician, or IT contractor operating through a company rarely has the clean, consistent payslips that a PAYG employee produces. Even where the business is profitable, net profit before tax can swing 40 per cent year‑on‑year. Lenders have long used two‑year tax return averaging for full‑doc loans, but when the borrower opts for a low‑doc pathway, the accountant’s letter is the primary income narrative. The problem is that not all accountants tell the same story. Some declare gross business revenue, others state net profit, and a few offer a cash surplus figure. Liberty Financial’s alt‑doc policy (effective 1 February 2024) makes clear that where an accountant’s letter is used without BAS, the declared income must be “net profit before tax from the most recent financial year as appearing in the business’s financial statements.” A letter that does not cross‑reference those statements is deemed insufficient.
How the Letter Bridges the Trust Deficit
Lenders treat the accountant’s letter as a professional attestation governed by APES 305 and subject to the Tax Agent Services Act 2009. When an accountant signs a letter confirming a client’s income, they are putting their registration at risk if the figure is materially misleading. Resimac’s credit manual, updated March 2024, states that an accountant’s letter “must be on the accountant’s letterhead, contain the tax agent registration number, and be signed by an individual who is a registered tax agent or a member of a recognised professional accounting body.” The letter therefore operates as a form of enforced honesty. For the lender, it is the closest proxy to a P&L guarantee that the alt‑doc market can provide without requiring audited accounts.
The Seven Mandatory Statements an Accountant’s Letter Must Contain
Non‑bank lenders have converged on a de facto industry standard for accountant letters used in construction loans. While each lender publishes its own checklist, seven statements appear across every policy without exception. Missing even one can delay the application or force a reversion to a higher‑rate, lower‑LVR product.
Business Viability and Going Concern
The letter must confirm that the business is a going concern and has been trading continuously for the period specified by the lender—typically two years. La Trobe Financial’s Specialist Lending Manual (March 2024 update) requires the accountant to state: “I have been the registered tax agent for [client name] since [date] and confirm the business has been actively trading for at least the previous 24 months.” Brighten’s Low Doc Guide v4.2 adds that the business must be “viable and solvent at the date of this letter.” Without this statement, the lender cannot be certain that the income is recurring, which is critical for a loan that may take 12 months to fully draw.
Income Derivation and Stability
A lender needs to know not just the dollar figure but the source. Pepper Money’s January 2024 guide asks that the accountant “describe the principal business activity and confirm that the declared income is derived predominantly from that activity.” If a borrower runs a plumbing business but the accountant letter shows income comprising mostly one‑off consulting fees, the stability test fails. Liberty goes further: the letter must note whether the income has been “stable or increasing” over the period of engagement. A declining trajectory flags a default risk that Liberty’s automated credit scoring will penalise with a lower borrowing capacity.
Specific Declaration of Taxable Income
Vague ranges are fatal. The letter must state: “Based on the [year] financial statements, [client name]’s net profit before tax was $X.” If the loan is submitted in July before the previous financial year’s tax return is lodged, some lenders will accept an interim profit estimate, but Resimac’s policy insists that the letter then declare a precise estimated figure and confirm the year‑to‑date performance supports it. The figure must match the income entered on the loan application within 5 per cent, or the lender’s automated system will raise a mismatch flag. In construction loans, where progress payment triggers depend on a stable debt‑service capacity, any income doubt can freeze the drawdown schedule.
Confirmation of No Outstanding Tax Liabilities
Most lenders now include a tax‑debt clause. A typical formulation appears in Liberty’s policy: “The accountant must confirm that the borrower has no outstanding taxation or GST liabilities that would materially affect the borrower’s ability to service the loan.” This is not a charity provision; it arose after a series of defaults in 2022–23 where small‑business borrowers had accumulated ATO debts that took priority over mortgage payments. ATO director penalty notices can derail a construction project, and lenders want the accountant on record stating the coast is clear.
Engagement Period and Status
The letter must state the date the accountant was first engaged by the borrower and that the engagement is ongoing. Bluestone’s alt‑doc construction checklist (2024) explicitly warns: “Letters from a new accountant who has not previously prepared the borrower’s tax returns will not be accepted unless accompanied by the previous accountant’s letter and a valid reason for the change.” This prevents “letter shopping” where a borrower jumps between accountants to obtain a higher declared income.
GST Registration and ABN
The letter should recite the business’s ABN and GST registration status. Brighten, for example, requires that the accountant confirms the ABN has been active for at least 24 months and that GST registration is current if turnover exceeds $75,000. This cross‑checks against the ABN Lookup and the borrower’s BAS statements if they are supplied.
Tax Agent Details and Signature
The accountant must provide their tax agent registration number, professional memberships, and a wet‑ink or qualified electronic signature. Pepper Money explicitly rejects letters signed by a junior staff member who is not a registered agent. The letter must be dated within 60 days of the application submission date—La Trobe and Brighten both enforce this shelf‑life rule strictly.
Lender‑by‑Lender Policy Comparison: What Each Non‑Bank Requires
The labelling may be consistent—alt‑doc, low‑doc, accountant‑declared—but the underwriting treatment diverges sharply. A letter that satisfies Pepper Money will not necessarily pass Liberty’s test, and a construction loan with Brighten may carry a different LVR and rate than with Resimac, even on identical supporting documents.
Pepper Money: BAS vs Accountant Letter
Pepper Money’s Product Guide (January 2024) draws a bright line between two income verification pathways: BAS‑backed and accountant‑letter‑only. If the borrower can provide four quarterly BAS statements showing a consistent turnover pattern, Pepper will take the annualised gross turnover and apply a 50 per cent income margin—a hard‑coded figure that removes the accountant’s discretion. Where a borrower relies solely on an accountant’s letter, Pepper caps the LVR at 75 per cent for construction, imposes a higher interest rate (typically 0.80 per cent above the BAS rate), and restricts the cash‑out component to $25,000. The letter must state net profit before tax, and Pepper will stress that figure at an assessment rate of the product rate plus 2.50 per cent, rather than the standard 3 per cent buffer, because the income is directly attested. For a loan amount of $800,000, the difference in required income can be $20,000 per year.
La Trobe Financial: Alt‑Doc Construction Loans
La Trobe’s Specialist Lending Manual (March 2024) makes room for what it calls “Alternative Income Evidence.” An accountant’s letter is accepted without BAS if the borrower also provides 12 months of business bank statements. The lender then performs a credit crediting analysis—comparing bank statement inflows to the accountant‑declared income. If the business bank credits exceed the declared income by more than 20 per cent, La Trobe may adjust the assessable income upward, but never downward. For construction, the LVR cap is 70 per cent if the security is in a metro area and 65 per cent in a regional area. The letter must confirm that the income used is not reliant on one‑off or capital gains. La Trobe also requires the borrower to demonstrate the construction project is fixed‑price or has a contingency allowance of at least 10 per cent, and the letter must state the borrower’s capacity to cover cost overruns.
Liberty Financial: Serviceability Nuances
Liberty treats the accountant’s letter as a full‑documentation equivalent only when paired with a signed borrower declaration and a Notice of Assessment from the ATO for the most recent financial year. Its policy, effective 1 February 2024, uses a “modified assessable income” formula: 100 per cent of the accountant‑declared net profit for the latest year, averaged with the previous year’s figure if the latter is lower. This two‑year averaging can cut capacity significantly. On a construction loan, Liberty’s buffer is the APRA‑standard 3 per cent above the product rate, and the maximum DTI is 6 times for loans below $1 million and 5 times for loans above. The accountant’s letter must explicitly state that the borrower has the financial resources to meet progress payment obligations while maintaining existing debt commitments.
Resimac, Bluestone, Brighten: Policy Variations
Resimac offers a streamlined construction alt‑doc for borrowers with an ABN registered for at least 24 months and GST registration. The accountant’s letter must accompany the last two years’ financial statements if they exist; if not, a letter alone can support up to 70 per cent LVR. Bluestone’s 2024 checklist caps construction LVR at 75 per cent for metro postcodes and 70 per cent for regional, and the letter must include a statement that the borrower “has not been subject to any ATO audit or review that could result in a material adjustment to income.” Brighten’s Low Doc Guide v4.2 (December 2023) reduces the LVR to 75 per cent from 80 per cent previously for construction and now requires the letter to break down income by source: personal exertion, investment, and business revenue. Brighten’s DTI cap of 6.5 is slightly more generous than Liberty’s, but only if the loan is below $700,000.
The Calculation: How Accountant‑Declared Income Flows into Serviceability
A number on a letterhead is not the number that drives the loan approval. Lenders convert the accountant‑declared income into an “assessable income” figure, apply a DTI cap, and then stress‑test using a specific buffer. For construction loans, the sequence includes additional friction because the loan exposure rises over time while the security is illiquid.
From Declared Income to Assessable Income
If the letter declares net profit before tax of $150,000, Liberty will average that with the prior year—say $130,000—to produce an assessable income of $140,000. Pepper, on a letter‑only pathway, will accept the single‑year figure of $150,000 but will apply a 50 per cent margin to any declared gross revenue if the borrower switches to BAS, which almost always yields a lower figure. Resimac’s policy is the most straightforward: it takes 100 per cent of the most recent year’s declared net profit, provided the accountant confirms the business is stable or growing. Bluestone applies a 0.8 multiplier to declared income when the borrower is in certain high‑risk industries, such as hospitality or construction subcontracting, reducing the effective assessable income before DTI is calculated.
DTI Caps and Buffers in Construction Lending
Once assessable income is known, the lender calculates the debt‑to‑income ratio. For a construction loan, the debt side is the facility limit, not the drawn amount, because the lender assumes the full limit will be drawn. Pepper Money imposes a DTI limit of 6.0 for alt‑doc construction loans. Liberty uses 6.0 for loans up to $1 million and 5.0 above. Brighten allows 6.5 for loans under $700,000 and 5.5 above. The assessment rate is the product rate—say 7.85 per cent p.a.—plus a buffer. For most non‑banks, the buffer is 2.50 per cent, not the full 3.00 per cent APRA requires of ADIs, but Liberty as a non‑bank ADI applies the full 3.00 per cent. At 10.85 per cent assessment rate, every dollar of assessable income supports roughly $7.40 of borrowing against a 30‑year principal‑and‑interest term. So a $140,000 assessable income yields a maximum borrowing capacity of about $1.04 million before the DTI cap kicks in. If the DTI cap is 6.0, that same income caps borrowing at $840,000. For construction, where the facility might be $900,000, an income of $150,000 will be borderline, and any letter that understates income by $10,000 can push the application over the edge.
Simultaneous Sale and Progress Payment Risks
Many self‑employed borrowers fund construction by selling an existing property. The accountant’s letter can affect the bridge scenario. If the borrower’s income is heavily reliant on an asset they are selling—a rental property, for instance—the lender may exclude that income from serviceability, requiring the letter to explicitly separate business income from passive income. La Trobe’s manual specifically asks the accountant to isolate “business‑derived income that will continue post‑settlement.” If the letter does not do this, the assessable income may shrink, and the construction loan approval may be withdrawn at the last progress payment stage. A high‑profile case in 2023 involved a self‑employed builder whose accountant letter combined business profit and rental income; the lender (Resimac) cut the facility at frame stage when the rental property was sold, leaving the borrower $150,000 short.
Avoiding a Letter Rejection: Common Mistakes and Lender Red Flags
Even when the accountant follows the seven statements, the letter can fail if it contains ambiguous language, conflicts with other documents, or lacks the specific details a construction loan demands. Lenders’ credit assessors see hundreds of these letters each month and have a template of instant knock‑out triggers.
Vague Wording and Boilerplate Letters
Statements such as “the borrower is able to service a loan of this size” or “in my opinion the borrower has sufficient income” are worthless without a specific income figure. Pepper and Liberty both have a “no‑opinion” rule: the letter must state facts, not opinions. Boilerplate letters that use the same wording for every client are flagged by automated compliance systems. Brighten’s policy says: “Generic letters that do not reference the client’s specific financial year and profit figure will be rejected.”
Inconsistencies with BAS and Bank Statements
When a borrower supplies an accountant’s letter alongside BAS—whether voluntarily or because the lender requests it—the assessor will cross‑reference. If the letter declares net profit of $120,000 but the BAS shows quarterly turnover of $200,000 with a 60 per cent cost ratio, the implied profit is $120,000 annually, which might match. But if the BAS turnover suggests a much lower or much higher net margin, the letter will be questioned. Liberty’s credit team, in a 2024 broker memo, noted that 30 per cent of accountant letters in construction loan applications were inconsistent with bank statement credits by more than 15 per cent. The result is a request for additional years’ financials, pushing the loan from alt‑doc to full‑doc.
Missing ABN or Tax Agent Registration Details
A letter without a valid tax agent registration number is dead on arrival. Resimac’s system will automatically reject any document missing the TAN. Bluestone’s checklist includes a requirement that the accountant’s ABN must be valid and match the ABN Lookup database at the time of submission. Any discrepancy halts the credit check. For construction loans where time is tight against a building contract’s finance clause, a rejected letter can mean losing the contract.
Overstatement or Understatement of Income
While most borrowers worry about understatement, overstatement is the bigger danger. If the letter declares a profit that the lender later discovers is unsupported by ATO records or financial statements, the accountant faces professional liability and the borrower may be flagged for mortgage fraud. In 2023, a La Trobe review identified six cases where accountant letters inflated income by more than 30 per cent above the lodged tax return; all loans were called in and the accountants reported to the Tax Practitioners Board. Self‑employed borrowers in construction must understand that the declared income must be defensible; it is not a target to be negotiated.
Actionable Takeaways for Self‑Employed Borrowers
- Request the accountant’s letter at least four weeks before submitting the loan application. The letter must be dated within 60 days, and any delay in obtaining it can cause an expired document and a fresh credit enquiry, hurting the credit score.
- Insist the accountant follow the seven mandatory statements precisely, using the net profit before tax figure from the most recent financial statements, and explicitly separate business income from any passive or one‑off income.
- Match the declared income to the reality of your BAS and business bank statements. If you are lodging BAS, ensure the turnover‑to‑profit ratio aligns with the accountant’s figure; a large discrepancy will be caught.
- Check your lender’s specific LVR and DTI limits for construction. Brighten may allow 75 per cent LVR at 6.5 DTI for loans under $700,000, but Liberty caps at 70 per cent LVR with a 5.0 DTI above $1 million. Choose the lender whose policy fits your numbers before the accountant writes the letter, not after.
- If your income has declined in the latest year, provide a supplementary letter explaining the cause (e.g., a major one‑off expense or a temporary market downturn) and evidence that the decline is not permanent. This can protect the two‑year averaging that Liberty and others use, preserving borrowing capacity that would otherwise be lost.