Sole traders face a different set of requirements when preparing to buy property compared to employees on a fixed salary.
Lenders assess self-employed borrowers using two years of tax returns, which means the income you declare through your business determines what you can borrow. The deposit you need depends on whether you qualify for a government scheme, and the state concessions available to you depend on whether you buy new or established. Understanding these moving parts before you start looking at properties will save you from applying for homes you cannot settle on.
How Lenders Assess Sole Trader Income
Lenders calculate your borrowing capacity by averaging your taxable income across the most recent two financial years of lodged tax returns. They use your net profit after business expenses, add back non-cash deductions like depreciation, and then apply standard living expense benchmarks. If your taxable income has been reduced through legitimate business deductions, your borrowing power is reduced in the same proportion.
Consider a sole trader in the digital consulting field who earned $95,000 in net profit before tax in the 2024-25 financial year and $102,000 the year before. The lender averages those two figures to arrive at $98,500, then adds back depreciation of $6,000 claimed across both years. That gives a serviceability income of around $101,500. With no other debts, that income supports borrowing of approximately $550,000 to $580,000 depending on the lender and your living expenses. If that same sole trader had claimed an additional $15,000 in travel and equipment deductions to reduce tax, the averaged income drops and so does the amount they can borrow.
This is why preparation for a property purchase often begins 12 to 24 months before you intend to buy. Balancing tax minimisation with borrowing capacity requires planning, and in some cases it makes sense to carry a slightly higher taxable income in the year or two leading up to your application.
Choosing Between New and Established Property in Sydney
The stamp duty concessions available to first home buyers in New South Wales depend entirely on whether you buy new or established. For an established home, you pay no transfer duty on properties up to $800,000 and a sliding concession applies on properties between $800,000 and $1,000,000. For vacant land intended for an owner-occupied home, the full exemption applies up to $350,000 and the concession phases out at $450,000.
The First Home Owner Grant in New South Wales pays $10,000, but only for new builds or substantially renovated homes. The property purchase cap is $600,000, or $750,000 if you are doing a land and build contract. If you buy an established home, you receive no grant but you do receive the stamp duty concession provided the purchase price sits within the threshold.
Most sole traders we work with in Sydney are buying established apartments or townhouses in the $750,000 to $950,000 range. At that price point, you receive a partial stamp duty concession but no grant. The concession tapers between $800,000 and $1,000,000, so a property purchased for $900,000 will attract duty of around $16,000 instead of the standard $34,000. That saving is material, but it still needs to be funded at settlement alongside legal fees, building and pest inspections, and lender establishment costs.
Using the Australian Government 5% Deposit Scheme
The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit without paying lenders mortgage insurance. Housing Australia guarantees the gap between your deposit and 20% of the property value. There are no income caps, no annual limits on the number of places, and the scheme is available through a panel of 31 participating lenders.
The property price cap in Sydney is $1,500,000. That cap was increased from 1 October 2025 and now covers most of the metro area including the Inner West, Eastern Suburbs, Northern Beaches, and parts of the Lower North Shore. You apply through a participating lender, not directly through Housing Australia. Your broker submits the application as part of your overall home loan application.
As an example, a sole trader purchasing an apartment in Marrickville for $850,000 using the scheme would need a 5% deposit of $42,500. Without the scheme, that same buyer would need a 10% deposit or pay lenders mortgage insurance on a loan above 90% of the property value. Lenders mortgage insurance on a 5% deposit loan of that size would typically cost between $18,000 and $24,000, which is either capitalised into the loan or paid upfront. The government guarantee removes that cost entirely.
The scheme can be combined with the New South Wales stamp duty concession. You cannot combine it with Help to Buy, which is a separate federal program involving shared equity.
What You Need Before Applying for Pre-Approval
Pre-approval gives you a conditional commitment from a lender before you make an offer on a property. For sole traders, the documentation required includes two years of lodged tax returns including the full return and the notice of assessment for each year, two years of business financials if your accountant prepares profit and loss statements separately, and recent personal bank statements covering at least three months.
Lenders also require proof of your deposit, which means statements showing the savings have been held in your name for at least three months. If part of your deposit is a gift from a family member, the lender requires a statutory declaration confirming the funds are a genuine gift with no obligation to repay. Some lenders accept gifted deposits without requiring any portion to come from your own genuine savings if you are using the 5% Deposit Scheme. Others still require at least half the deposit to be sourced from your own funds.
You also need to provide identification, proof of residency, and evidence of any other assets or liabilities including credit cards, car loans, or outstanding tax debts. The Australian Taxation Office can place a garnishee notice on a loan if you have unresolved debts at the time of settlement, so any payment plans or disputed amounts need to be addressed during the application stage.
Once pre-approval is issued, it remains valid for between three and six months depending on the lender. If your income changes, your tax return is updated, or you take on new debt during that window, you need to notify the lender before proceeding to unconditional contract.
Structuring Your Loan for Flexibility After Settlement
Most sole traders benefit from splitting their loan between a fixed portion and a variable portion with an offset account attached to the variable split. The fixed portion locks in your repayment for a set period, which can be one to five years depending on the lender. The variable portion allows you to make extra repayments without penalty and gives you access to any surplus funds through the offset.
An offset account is a transaction account linked to your loan. The balance in the offset reduces the amount of interest charged on the loan without actually reducing the loan balance. If you have a $500,000 loan and $30,000 sitting in the offset, you only pay interest on $470,000. The $30,000 remains accessible, which is useful for sole traders who may need to manage irregular income or cover business expenses between invoicing cycles.
Fixed portions do not allow offset accounts or unlimited extra repayments. You can usually make up to $10,000 or $20,000 in additional payments per year on a fixed loan depending on the lender, but amounts beyond that threshold attract break costs if you repay early. That is why most structures involve a 50/50 or 60/40 split rather than fixing the entire amount.
You can adjust your split at each fixed rate expiry, so the structure is not permanent. If your circumstances change or you build up a larger offset balance over time, you can choose to fix a smaller portion or leave the entire loan variable when the fixed term ends. Your broker will talk you through the options that suit your cash flow and risk tolerance before you lock anything in. For more details on what happens when a fixed period ends, refer to our fixed rate expiry guide.
Timing Your Purchase Around Your Financial Year
If you lodge your tax return in October and apply for a loan in November, the lender will have access to your most recent two years of assessable income. If you apply in August before lodgement, the lender can only use the prior two years, which may reflect lower income if your business has grown. Timing your application to follow lodgement of a strong financial year can increase your borrowing capacity by tens of thousands of dollars.
This also applies to sole traders who are transitioning from employment to self-employment. If you have been operating for less than two full financial years, most lenders will not assess you as self-employed. Some lenders will accept 12 months of trading history if you were previously employed in the same field and your accountant provides a letter confirming ongoing viability. Others require the full two years with no exceptions. Knowing where you sit in that timeline before you start looking at properties will prevent disappointment at the application stage.
Call one of our team or book an appointment at a time that works for you. We will review your tax returns, walk through your deposit options, confirm what schemes you qualify for, and structure your application to reflect the income your business actually generates. That preparation makes the difference between applying with confidence and applying on assumptions that do not align with how lenders assess sole traders.
Frequently Asked Questions
How do lenders calculate borrowing capacity for sole traders?
Lenders average your net taxable income across the most recent two financial years of lodged tax returns, add back non-cash deductions like depreciation, and apply living expense benchmarks. If you have reduced your taxable income through business deductions, your borrowing power is reduced in the same proportion.
Can I use the 5% Deposit Scheme if I am self-employed?
Yes, the Australian Government 5% Deposit Scheme has no income caps and is available to sole traders provided you meet the first home buyer criteria and purchase within the Sydney price cap of $1,500,000. You apply through a participating lender, and the scheme can be combined with New South Wales stamp duty concessions.
What is the benefit of an offset account for sole traders?
An offset account reduces the interest charged on your loan without locking funds away, which is useful for sole traders managing irregular income or business expenses. The balance remains accessible while reducing your interest costs on the variable portion of your loan.
Do I qualify for the First Home Owner Grant if I buy an established home in Sydney?
No, the New South Wales First Home Owner Grant of $10,000 only applies to new builds or substantially renovated homes with a purchase cap of $600,000 or a land and build cap of $750,000. Established home purchases are eligible for stamp duty concessions but not the grant.
When should I apply for pre-approval if I lodge my tax return in October?
Applying after your October lodgement allows the lender to assess your most recent two financial years of income. If you apply before lodgement, the lender can only use the prior two years, which may reflect lower income if your business has grown recently.
