Demand up for no-hassle 'liar loans'

By Susan Edmunds

The loans  don't need the normal levels of paperwork and are popular with self-employed people. Photo / Thinkstock
The loans don't need the normal levels of paperwork and are popular with self-employed people. Photo / Thinkstock

"Low-doc" loans are back in the market and demand for them is increasing quickly, mortgage brokers say.

The loans don't need the normal levels of paperwork, such as two years' of financial statements, and are popular with self-employed people.

Interest rates are slightly higher than mainstream banks, often around 7 per cent.

They became infamous during the credit crunch for enabling people to borrow more than their incomes would allow them to service, or for people who were not declaring large chunks of income to avoid tax. But brokers and lenders say the new low-doc loans are different from their predecessors.

Before, a borrower could state their income and a lender would take them at their word. Now, lenders use methods such as GST returns to gauge income.

Broker Jeff Royle said he had processed about 20 low-doc loans this year.

"I had a guy who had run a business for a few months and was going to Sydney," Royle said. "He wanted to borrow $100,000 on a freehold $400,000 house. He was spitting blood that his bank wouldn't do it."

Royle found him a deal with an Australian lender.

He said banks were reluctant to admit they would sometimes consider low-doc lending, but he had done deals with mainstream lenders, particularly for borrowers with a lot of history with a bank or who had moved from employment to self-employment within the same industry and had a proven track record.

BNZ said low-doc lending was about 0.25 per cent of its lending book. But broker John Bolton, of Squirrel, said banks were getting better at doing tricky deals under their standard lending policies and didn't need to get into low-doc loans.

"I did one where the bank allowed us to use assumed income on a growth share portfolio that didn't pay dividends. I got one for a client with no meaningful income to buy an investment property at 60 per cent."

He said non-bank lenders were offering low-doc products but he did not think banks would be rushing to compete.

"I don't know that there is too much need for low-doc as we tend to be able to get everything through as standard.

"In the past, low-doc was referred to in the industry as liar's doc. I'd be surprised if the banks jumped back into it in any meaningful way."

The two main low-doc players are Liberty Financial, which has been operating in New Zealand for 10 years, and Resimac, a new Australian lender launching here this year.

Broker John Peterson said he had processed several Liberty low-doc loans this year. "It was all go at one stage then they fell off the market when the recession came. They're starting to come out of the dust again now. For self-employed people, they are fantastic."

He advised people to refinance with traditional banks when their books were in order.

Low-doc lending tended to come with an interest rate premium. Royle had done a deal with Resimac on a $1.2 million house with $750,000 lending on an interest rate that was 1 per cent higher than the banks were offering.

"For someone who can't prove their income, that's not bad. People have to realise it's always going to be a bit more expensive than mainstream banks.

"A lot of people just use it for a couple of years, because by then they'll have full financials. It's a means to an end."

- Herald on Sunday

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