Low cost loans in Australia - Only Finance.com

Loans - Low cost loans in Australia - 22/09/2008

One of Australia’s biggest mortgage broker has announced a controversial ‘low-doc’ home loans scheme as lenders flee from high-risk products due to disasters in the financial sector.

John Symond from Aussie Home Loans stated that the proportion of low-doc loans secured loans with little or no proof of a borrower’s ability to meet repayments written by the broker has decreased from 15% to 2%.

Symond stated: “The major lenders still have low-doc loans in their suite of products but it's more for window-dressing because trying to get a loan approved is now virtually impossible. Our people won't even go there because it's a waste of time. This is the death of the low-doc loan.”

However, for the brokers and lenders who have already taken out such loans the damage has already been done. They account for 13% of the loans written by Bendigo and Adelaide banks and 38% of homes the group repossessed were bought by using the low-cost loan system.

Low-doc loans allows a borrow to not provide proof of income and lenders claim they are favoured by small business operators who are unable to provide proof of a stable income. As a low-doc loan presents high risk, the lenders require a higher deposit from the homebuyers, usually around 20-40% of the property’s value.

The Commonwealth Bank claimed that it had tightened its lending policies in regards to low-doc loans, which represented 3%-4% of its loan books.

It has been thought that the rise of low-doc loans was a result of specialist low-doc lenders moving out of the market.

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