Low Doc Mortgages Slowly Becoming Extinct

Low documentation mortgages may be a thing of the past due to risk-averse lenders remodelling their lending policies in the aftermath of the Global Financial Crisis, according to leading mortgage broker Loan Market.

Loan Market Melbourne senior finance broker Hannah Nguyen said banks, including the four majors, had tightened their credit policies since the GFC.

“In the past, if you had an ABN number registered over two years and a good deposit of 20 per cent, you would get the loan easily by completing a self-certified income declaration,” she said.

“However, this is a thing of the past and now alternative documents such as a 12-month BAS statement, a letter from your accountant confirming your income, or a three month trading statement showing high turnover, are required.”

Ms Nguyen said low doc applicants are now considered high risk because of the simple fact that the banks are unable to see their full financial circumstances.

“Banks will now apply a number of other protocols to ensure a low doc loan applicant is a safe bet,” she said.

“The most basic way is taking a high deposit, and this is typically at least 20 per cent of the purchase price of the property and five per cent of associated costs such as stamp duty.

“Alternatively, they will require Lenders Mortgage Insurance if the borrowing is more than 60 per cent, in comparison to full documentation clients for who it is applied on an 80 per cent borrowing.

“Higher interest rates are another method, although this will depend on the lender and the loan-to-value ratio.”

Ms Nguyen said borrowers who were self-employed and had difficulty showing proof of their income or had a fluctuating income, were most affected.

“Lending policies to self-employed applicants are becoming more and more difficult,” she said.

“It is best to speak with a mortgage broker who specialises in low doc mortgages to find out which of the lenders will qualify you based on your individual situation, and which lender will provide you a solution best tailored to your individual circumstances.”

Further enquiries talk to Hannah Nguyen on 0415 738 178