This article is from the Australian Property Journal archive
BORROWERS have not swayed away from low-documentatio mortgages in the wake of the global credit crunch, according to a survey by X Inc Finance and Loan Market.
According to X Inch, almost 63% of respondents claim low-doc and no-doc loans were appropriate in the right circumstances.
X Inc and Loan Market’s chief executive Jennifer Nielsen said borrowers in Australia have quite a mature understanding of limited-documentation loans and have not been unsettled by the hype surrounding the United States subprime loan market.
“In reality, the US and Australian mortgage industries are actually very different, with lenders here setting far stricter conditions on low-doc and no-doc loans,”
Nielsen pointed out that in Australia a low-doc mortgage is classified as a loan made to a person with a clean credit history at an 80% loan-to-valuation ratio and were typically used by the self-employed, those with variable income or people lacking tax returns or financial reports.
On the other hand, a US subprime low-doc loan can be made at greater than 80% LVR to a person with defaults on their credit history.
The survey suggested that lenders needed to invest more time in educating borrowers as 19.1% of respondents believed that low-doc and no-doc loans took advantage of low-income earners. Also, 18.3% of people said they did not understand the mechanics of that form of finance.
A third of respondents to the survey claimed to currently hold a low-doc or no-doc loan whilst a further 14.6% have had one previously without incident.
Finally, more than 12% of people claimed they had experienced problems and would not seek that form of finance again.
Nielsen said it is encouraging to see that people have not been swayed away from what is a legitimate and responsible form of finance for thousands of borrowers.
“The real emerging issue is not people’s attitude to low-doc loans, but rather both the availability and the cost of these kinds of loans as available funds tighten,” she concluded.
Australian Property Journal
