Low-doc lending finding favour again

The loans don’t require the same amount of paperwork as a standard mortgage and are popular with those who do not yet have the financial records to declare their income.

The interest rates offered are slightly higher than those of the mainstream banks.

They became infamous during the credit crunch for enabling people to borrow more than their incomes would allow, 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.

Broker Jeff Royle told the Herald on Sunday he had processed 20 low-doc loans so far this year. He said that was a big increase on last year.

The two main players in the low-doc market are Liberty Financial and Australian new-entrant Resimac.

BNZ said low-doc loans were about 0.25 per cent of its lending book.

Broker John Peterson told the newspaper 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 suggested the people use the loans as a stepping stone and refinance with a mainstream bank once their books were in order.

Low doc lending tended to come with an interest rate premium of 1% or 2%, the brokers said.

Royle told the paper: "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."

But he said modern low-doc products were purely for self-employed people. Five years ago, many of the borrowers would have been people on commission, such as real estate agents. “There’s nothing around for them now,” Royle said.

See the latest issue of The Mortgage Mag for an in-depth look at low-doc lending.