Lenders in this market fall into three categories, namely: banks, securitised lenders and non-conforming lenders.
Banks will generally lend a self-certified borrower up to a maximum of 80 per cent of the value of the residential property. Mortgage insurance is required when the LVR exceeds 60 per cent.
The majority of banks will only offer Lo Doc loans when they are available, to individuals and not to companies or trusts. The interest rates and general terms and conditions are similar to those offered to a fully verified borrower.
Once again, the ability to obtain lo-doc loans is directly linked to the health of the economy. Since the GFC it has become very difficult to access such loans.
Like the banks, securitised lenders such as Macquarie will lend up to 80 per cent LVR for self-certified borrowers. Securitised loans are mortgage insured irrespective of the LVR. However, to compete with the banks, the lender pays the mortgage insurance cost on behalf of the borrower. While this may seem attractive to the borrower, the securitised loan has significant early termination penalties in the first one to five years.
Borrowers can be individuals, companies or trusts and interest rates are generally slightly higher than those offered by the bank.
For clear credit, self-certifying borrowers, non-conforming lenders will lend up to 95 per cent of the value of the residential property, depending on the loan size, location of the property and period of self-employment.
The loans are not mortgage insured so some lenders in this category charge a credit-risk fee in lieu of mortgage insurance. Non-conforming lenders increase the interest rate on the loan in line with the increase in the LVR. If the LVR is less than 80 per cent, the interest rate is competitive with rates offered by banks or securitised lenders. For loans exceeding an 80 per cent LVR, the rates increase significantly. Interest rates at a 90 per cent LVR are approximately 3 per cent higher and 4.5 percent higher with a 95 per cent LVR. Like securitised lenders, loans with non-conforming lenders have relatively high early-termination penalties compared to the banks.