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Australia’s self-employed may be forking out more for their mortgages, but higher costs look unlikely to cool demand for low doc loans
The cost of borrowing has gone up across the board as a result of the liquidity crisis, with low doc loans taking the brunt.
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Demand for low doc lending, however, remains strong.
The emergence of low doc lending has been a major revenue channel for the non-bank sector, tapping into the once overlooked self-employed market.
Since the late 1990s the market has grown substantially with commitments for low docs hitting approximately $33.7 billion by the end of 2006, according to the most recent Genworth Financial Spotlight Series report.
Self-employed borrowers, coupled with contract and casual workers, now account for around 39% of the nation’s workforce – highlighting the massive market open for low doc mortgage providers.
Peter Hall, country executive and director of Genworth Financial Australia and New Zealand believes low doc loans are likely to continue to be popular with lenders despite the current market conditions.
Hall points to the findings of the latest Genworth Spotlight series which estimates that the low doc market will be worth $58.4 billion by 2011.
Price impact
James Cameron, senior manager for product and member value at Savings and Loans Credit Union in Adelaide, also highlights the product’s important role in the Australian lending landscape.
“Low doc loans aren’t a central part of our business, but in terms of providing our members with a range of lending options they’re quite important,” says Cameron.
Cameron is unconcerned about the impact of rising funding costs on low doc lending and believes that re-pricing is taking its course across mortgage lending.
“Low docs follow market trends just like any other sort of loan – so if the wider mortgage market has price adjustments you can expect these to follow through to low doc loans,” explains Cameron.
Peter Hall is satisfied that the low doc loan market will continue to grow regardless of recent price adjustments, highlighting the changing nature of the Australian workplace as a market driver.
“With prudent execution, lenders can expand their product offering and customer base [through low doc lending] – it’s a win-win situation for borrowers and lenders,” he says.
