Fixed-term contracts fund some of the largest corporate services engagements in the country — the Australian Taxation Office estimates that more than 700,000 individuals operate through a company structure, and a fast-growing subset rely on time-limited consulting agreements to generate the bulk of their income. When that contractor is also a director and shareholder of the entity, mortgage assessors face a classification puzzle that has only intensified since the Reserve Bank began lifting the cash rate in May 2022. Lenders have responded by hardening the serviceability buffers they apply to self-employed borrowers, and income derived from a fixed-term contract — however stable it looks on a set of bank statements — is no longer treated as de facto salary. The Australian Securities and Investments Commission’s update to RG 209, which took effect in October 2023, reinforced the requirement that lenders must verify income at source, pushing even the specialist channel to demand documentation that ties contract terms directly to the borrower’s ability to service a 30-year loan.
The practical result is that a company director on a $200,000-a-year fixed-term engagement may find borrowing capacity cut by a third or more compared with a PAYG employee on the same gross figure, purely because the income is deemed to have a finite tail. This article examines how the major low-doc and alt-doc lenders — Pepper Money, La Trobe Financial, Liberty Financial, Resimac, Bluestone and Brighten — assess fixed-term contract income for director-borrowers, and what those assessments mean for loan-to-value ratios, debt-to-income caps and the serviceability arithmetic that ultimately dictates the cheque.
The director as borrower: self-employment classification and fixed-term contracts
Breaking the ‘Pty Ltd veil’ — why a contract isn’t a payslip
A director who also performs the day-to-day work of the business is rarely treated as an employee by mortgage credit departments, even when the company issues regular salary payments and a PAYG withholding summary. The test turns on control: if the borrower is both director and shareholder, the lender classifies the income as self-employment sourcing from a private company. The fixed-term contract is therefore judged as business revenue rather than personal remuneration. That distinction matters because it triggers the application of self-employed verification standards, which require either full financials for two years or acceptance under an alt-doc pathway that uses bank statements, BAS lodgements or an accountant’s letter as proxies.
When a fixed-term contract income qualifies as salary
There is one narrow exception. A small number of specialist lenders will assess a director’s income under standard PAYG rules if the entity has an arms-length contract with a third party, the director is not a controlling shareholder (owning less than 25 per cent of the equity), and the work is performed exclusively for that entity under a genuine employer-employee relationship. In practice, that set of conditions almost never applies to the typical single-director Pty Ltd structure where the individual owns 100 per cent of the shares. The income therefore stays in the self-employed column, and the contract’s duration becomes central to the credit decision.
The dual-income maze: salary, dividends and lender haircuts
Many director-borrowers split their take-home into a nominal salary plus franked dividends. Low-doc and alt-doc lenders handle this with standard add-back rules, but they will haircut the total contract revenue flowing into the company. It is common for an assessor to apply a 60 per cent gross-up to the most recent BAS lodgement — reflecting the industry convention that 60 per cent of total sales represents gross income available to the director — and then deduct an allowance for actual business expenses. The result is an effective personal income figure that often sits 15–25 per cent below the headline contract value, even before buffer haircuts are applied.
Document requirements under low-doc and alt-doc pathways
BAS-only lodgements and the 60 per cent gross-up rule
The purest form of alt-doc verification relies on business activity statements lodged with the ATO. Lenders will typically request the four most recent quarterly BAS documents and apply a 60 per cent multiplier to the total sales figure — $100,000 reported over a quarter thus translates to $60,000 of deemed annualised income for servicing. When a fixed-term contract is the primary revenue source, the assessor cross-checks the BAS total against the contract schedule, looking for consistency. If the contract is due to expire within the next 12 months, many lenders also require a signed extension or a history of regular renewals to satisfy the “going concern” test.
Accountant letters: what must be confirmed and how contract details fit
A accountant’s letter remains the workhorse of the alt-doc segment. To satisfy the major non-banks, the letter must state the director’s average monthly income over the most recent six or 12 months, confirm that the income is derived from a fixed-term contract with a named counterparty, and specify the remaining contract length. La Trobe Financial’s Low Doc Credit Policy Notes (revised October 2024) require the accountant to certify that the income is “stable and continuing”, while Pepper Money’s Alt Doc Product Guide (March 2024) demands that the letter be dated within 30 days of application and include the contract end date. With those two documents, a director can avoid supplying full financials, but the contract’s expiry becomes a hard boundary for the loan term.
Minimum remaining contract period and renewal history thresholds
Across the specialist panel, the minimum contract tail required at application is almost universally 12 months. Liberty Financial, in its broker manual updated October 2024, goes further: it will only consider fixed-term income if the borrower can demonstrate at least one prior renewal with the same client, or if the contract has a firm option to extend. Resimac’s 2024 product matrix applies a 12-month minimum but will accept as little as six months if the loan is fully documented and the borrower has a 24-month contracting history. Bluestone’s credit policy requires 12 months remaining and a written statement from the director confirming ongoing engagement, while Brighten’s Alt Doc Guide (March 2024) stipulates 12 months on the contract and six months of consistent personal bank statement credits showing the income hitting the account.
Lender-by-lender snapshot: LVR, DTI and buffer rules for contract-based directors
Pepper Money: 75% LVR with a 2.5% buffer
Pepper Money’s alt-doc product, as detailed in its product guide version 4.2 (March 2024), allows a maximum LVR of 75 per cent for loans up to $1 million where the borrower can evidence at least six months of income from a fixed-term contract that has no less than 12 months remaining. The loan is assessed at a floor rate of 2.5 percentage points above the product rate, and while Pepper does not publish a hard DTI ceiling, broker feedback indicates that applications with a DTI above 8.0 times rarely pass under this framework. For the director-borrower with a $150,000 annual contract and no other debt, the effective maximum loan size is roughly 6.0 times income after the 2.5 per cent buffer is applied to an assumed 9.0 per cent assessment rate — around $900,000, assuming a clean $50,000 living expense deduction. With a 75 per cent LVR cap, the property value ceiling moves to $1.2 million.
La Trobe Financial: 80% LVR for strong contracts with at least 12 months to run
La Trobe Financial’s Low Doc offering (credit policy notes updated October 2024) provides a maximum LVR of 80 per cent on purchases and refinances for self-employed applicants who can show a fixed-term contract with a minimum 12 months remaining at settlement. The lender uses the lower of the product rate plus 2.5 per cent or a 9.25 per cent floor rate, imposing an effective DTI cap of 6.5 times. A director on a $200,000 contract income, grossed up at 60 per cent from BAS ($120,000 recognised income), would be limited to a loan of approximately $780,000 when living expenses of $48,000 are deducted — well below the $1.2 million a PAYG borrower on the same gross could access.
Liberty Financial: alt-doc at 70% LVR and a hard 6.0 DTI cap
Liberty Financial’s self-employed product line (broker manual, October 2024) caps the LVR at 70 per cent for alt-doc loans, with a strict DTI cap of 6.0 times. The contract must have at least 12 months remaining, and the applicant is required to provide six months of personal bank statements showing regular deposits that align with the invoice schedule. The assessment rate is the higher of 2.5 per cent above the note rate or a 9.0 per cent floor. A $180,000 contract income, reduced by a 25 per cent haircut after the 60 per cent gross-up (resulting in $81,000 recognised income), yields a maximum loan of approximately $486,000 — a stark illustration of how the combination of LVR, DTI and buffer bites.
Resimac, Bluestone and Brighten — the niche thresholds
Resimac’s ResiMax alt-doc allows up to 75 per cent LVR and uses a 2.5 per cent buffer with an effective DTI limit around 8.0 times for borrowers with clean credit. The contract must run at least 12 months and be supported by six months of bank statements. Bluestone’s Blue Plus alt-doc has a 70 per cent LVR, a 6.0 times DTI cap and requires 12 months remaining on the contract plus a line of sight to renewal. Brighten (Alt Doc Guide, March 2024) permits 75 per cent LVR, a DTI cap of 7.0 times and the standard 12‑month contract tail. Across all three, the director’s income is calculated via the 60 per cent BAS multiplier unless the applicant supplies an accountant’s letter that specifically attributes contract revenue directly to personal drawings — a nuance that can lift recognised income by 10–15 percentage points, provided the letter is written to each lender’s template.
Serviceability crunch: what a 2.5% buffer does to fixed-term borrowing power
The maths of a 12-month income stream versus a 30-year PAYG stream
A standard serviceability model discounts any income that is not expected to continue for at least the next five years, but for fixed-term contract income the effective tenure is often capped at the remaining contract period. If the contract has 12 months to run, the lending engine applies an annuity calculation that spreads the income over only 12 months, sharply compressing the net present value of the future cash flow. Combined with a 2.5 percentage point buffer, the assessed annual income for a $200,000 contract that is 12 months from expiry can produce a borrowing capacity that is 35–40 per cent lower than the same gross salary under a PAYG permanent employment assessment. At a 9.0 per cent assessment rate, the difference in maximum loan for a single applicant with no dependants and $50,000 in living expenses can exceed $300,000.
How DTI caps interact with contract length and residual income
Lenders that enforce a hard DTI cap, such as Liberty’s 6.0 or La Trobe’s 6.5, treat the contract income as a permanent line only when it is renewed year after year. A director with a three-year contract and two years of consistent personal drawings may be able to argue that the income should be annualised over the longer period, but many assessors will still peg the income figure to the lower of the contract value or the trailing twelve-month average. That creates a double discount: first through the 60 per cent gross-up, then through a prorated contract length, and finally by the DTI division. The net result can push a director with a $250,000 contract into a maximum loan of just $625,000 even with strong credit.
A worked example: $180,000 contract income and a 75% LVR target
A company director applying under Pepper Money’s alt-doc framework holds a fixed-term contract generating $180,000 per annum (ex GST) with 14 months remaining at settlement. The most recent four BAS show quarterly sales of $45,000. The 60 per cent gross-up yields $108,000 in recognised annual income. After deducting $48,000 in living expenses, the assessor arrives at $60,000 available to service debt. The assessment rate is 9.0 per cent (2.5 per cent buffer). Dividing $60,000 by the annual repayment factor for a 30-year principal-and-interest loan at 9.0 per cent (0.0972 per dollar) gives a maximum loan of $617,284. With a 75 per cent LVR cap, the maximum property value is $823,045. The same income under a PAYG permanent-employee assessment, using an 8.5 per cent assessment rate and no gross-up haircut, would produce a loan of $882,353 against a $1,176,471 property. The penalties stack quickly.
What company directors should do now
The gap between contract-driven income and actual borrowing capacity can be closed with a few deliberate steps before an application is lodged.
-
Extend the contract before seeking finance. A contract with 18–24 months remaining significantly relieves the term compression effect. If an extension is imminent, hold the application until it is signed. A signed option to renew can also satisfy most lenders.
-
Build a two-year history of consistent personal drawings. Six months of bank statements that show a stable monthly credit landing from the corporate account, combined with an accountant’s letter stating the income is regular, can shift the assessment from a pure 60 per cent BAS measure to a higher add-back percentage. Lenders such as Brighten and Pepper will accept 80–90 per cent of documented drawings if the trail is clean.
-
Use a hybrid documentation approach. Where contract income is strong but BAS figures lag because of business deductions, combining an accountant’s letter with the previous year’s tax return (even if earnings were lower) can unlock a higher serviced amount via some alt-doc products. Liberty and Resimac have specific “accountant-declared income” pathways that reduce the gross-up haircut.
-
Shop the DTI ceiling, not just the rate. A director with a DTI of 7.5 times will be rejected by Liberty but may pass with Brighten or Resimac, where the cap sits at 7.0–8.0. The lowest rate in the market is irrelevant if the loan is declined; match the application to a lender whose thresholds the numbers actually clear.
-
Consider an asset-secured or caveat-backed facility if the serviceability number falls short. Bluestone and La Trobe both offer products that lean more heavily on the property’s equity than on income, allowing LVRs up to 70 per cent on a near-prime basis with minimal income verification. For a director sitting on significant property equity but a short contract tail, this can be the only viable bridge until the contract is renewed.