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SMH, 31 May 2006*: WARNINGS from Federal Treasurer Peter Costello have not curbed banks' appetite for customers traditionally considered high-risk.Low doc loans have attracted a lot of publicity recently, nearly all major banks have these products . Most don't add a margin for any additional perceived risk despite the Treasurer's statementThe market for funds for self-employed has certainly changed for the' better', no more disappointments of being at the mercy of banks demanding 2 years of tax returns. Again quoting from SMH 31May2006* "St George Bank chief executive Gail Kelly signalled yesterday that she would be willing to increase her bank's percentage of low documentation loans from this year's 6 per cent to as much as 10 per cent. "This is not sub-prime lending," Ms Kelly said. "This is prime lending." However the report goes on to say, "the products serve different markets but their arrival heralds an increasing willingness by the banks to court riskier business." Ms Kelly said the bank had dispersed the risk acquired through a large exposure to low-doc loans relative to competitors. St George's in-house insurer and reinsurers ended with the risk. "We have truly outstanding credit quality," she said. "It is a source of differential advantage for us." . Low Doc Loans or Self-Certified loans are mainly for clients who cannot or are unable to provide full financial statements, eg self employed without previous years statement of accounts, tax returns etc, even though they believe they can service the loan. There are two types of Low Doc Loans, the first type does not require a premium to be paid over the normal rates. These loans are for applicants with good credit history but whose income sources can't be easily ascertained. Generally these loans are for investment, refinancing or purchasing a residence .. The second type is for self-employed, ( both types can be jointly with a PAYG applicants) here again the applicant(s) must provide evidence of nett assets worth. The income declaration will be checked against similar business profiles and previous loan statements and other credit checks to confirm serviceability criteria can be meet. Generally require the applicants to have 2 years ABN registered with BAS payments. Some lenders will provide self-certified loans even for short periods of self-employment and not require an asset and liability statement but the rates tend to be high. For both these type of loans Loan Mortgage Insurance will vary with the lender, some absorb the premium from 60% to 80%of LVR, and there is quite large variation in interest rates. The other lenders require borrowers to pay for premium amounts above 60% to a max generally of 80% LVR. Most of these lo doc loans have a maximum amount of $1M or 80%LVR. However, some lenders will go up to $1.20M . Low Doc Line of credit: Excellent for the property investor with up to 10 sub accounts(one fee, $250pa) to allow you to build a portfolio properties. With rates discount of 0.7%pa on standard variable rates for loans over $500,000 and up to $1M. The investor has greater flexibility to add to his portfolio or to sell down without significant costs or fees. Low Doc lending from 80%to95%LVR and to $1M It is not surprising that these high LVR loans tend to attract high rates and for those without clean credit an additional risk margin. The loan insurance where it is not reflected in the rates, tend to be high as is the "exit" fees in the first 4 years . These loans are extremely useful for those who wish to take advantage of investment opportunities. * SMH- Sydney Morning Hearld published by Fairfax Pty Ltd, Sydney. Disclaimer: The information contained herein is for the benefits of Sydney Mortgage plus Pty Ltd clients. However your future financial situation and interest rate movements can affect the strategy, therefore you must obtain independent financial advice. This company takes no responsibility or accepts liability for any adverse outcome as a result of using these methods. Terms, conditions, fees and charges apply to each of these loans, for further details contact Samuel Chacko. |
