Low Doc Loans – Could this be the end?
Low doc lending over the last 18 months has tightened significantly. Lenders are increasingly making it harder for self employed borrowers who do not have full financials to borrow. Some of the new changes of low doc loans are as follows;
- 1 year BAS statements required for loans that borrow between 60 and 80 percent of the properties value (LVR 60 to 80%)
- Cash out restrictions apply between the 60 and 80% LVR bracket and can also apply for loans less that 60% which is at the lenders discretion
- The lender may want to look at trading and banking statements
- Variety of product has decreased and interest rates are higher for LVRs between 60 and 80%
The new National Consumer Credit Protection (NCCP) laws require that mortgage brokers, banks and non banks will have to prove that the borrow is suitable for a loan. This applies to both home loans for the principle place of residence and investment property loans.
Therefore, both brokers and lenders will require added documentation to ensure the borrower is suitable for a loan.
This does not mean that tax returns need to be completed but a broker or lender may need some or all of the following documents to ensure the borrower can afford to make the repayments regardless of loan to value ratio (LVR);
- Minimum 1 year BAS statement
- Bank trading statements for at least 12 months
- Accountants letter
- Projected income
- A declared statement
No doc loans will no longer be available as the NCCP laws make it impossible to legally accept a loan application with out making financial checks.
However, the NCCP Act does not apply to low doc loans that apply to credit of a commercial nature. Low doc commercial loans and no doc will still operate in this space
