The majority of Australians hold little fear of limited-documentation mortgages in the wake of the collapse of the US subprime loan market, according to a survey by Loan Market, Australia's fastest growing mortgage broking group.
The group's February online poll found that the recent problems in the US higher-risk loan market had not overly damaged demand in Australia, with almost 63% of respondents to the survey claiming low-documentation and no-documentation loans were appropriate in the right circumstances.
"The results suggest borrowers in Australia have quite a mature understanding of limited-documentation loans and haven't been unsettled by the hype surrounding the US subprime loan market," said Jennifer Nielsen, Loan Market Chief Executive.
"In reality, the US and Australian mortgage industries are actually very different, with lenders here setting far stricter conditions on low-doc and no-doc loans.
"It's encouraging to see that people haven't been swayed away from what is a legitimate and responsible form of finance for thousands of borrowers," she said.
Ms Nielsen said the real emerging issue is not people's attitude to low-doc loans, but rather both the availability and the cost of these kinds of loans as available funds tighten.
The loans were typically used by the self-employed, those with variable income or people lacking tax returns or financial reports.
The US and Australian mortgage industries are very different.Ms Nielsen pointed out that in Australia a low-doc mortgage is classified as a loan made to a person with a clean credit history at an 80% loan-to-valuation ratio (LVR). Meanwhile, a US subprime low-doc loan can be made at greater than 80% LVR to a person with defaults on their credit history.
The survey suggested that lenders needed to invest more time in educating borrowers as 19.1% of respondents believed that low-doc and no-doc loans took advantage of low-income earners. Also, 18.3% of people said they did not understand the mechanics of that form of finance.
A third of respondents to the survey claimed to currently hold a low-doc or no-doc loan while a further 14.6% have had one previously without incident. More than 12% of people claimed they had experienced problems and would not seek that form of finance again.
Loan Market survey results
Q: What is your view of low-doc or no-doc loans?
- Appropriate in the right circumstances - 62.6%
- They're taking advantage of low-income earners - 19.1%
- Don't trust/understand them - 18.3%
Q: Would you consider taking out a low-doc or no-doc loan?
- Not appropriate for my circumstances - 39.7%
- Yes, in fact I have one now - 33.6%
- I've had one in the past - 14.6%
- Never again - they're trouble - 12.1%
