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 X Inc Finance and 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, X Inc and 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.
X Inc Finance 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%
