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11:58:56 pm

A Look At Low-doc, Bad Credit And No-deposit Loans

'Low-doc' home borrowers hit by rising rates

Real estate

When applying for a low-doc home loan, the borrower will need to fill out an income declaration form stating his income and assets through a self-verification process instead of providing proof of employment, pay slips and other financial statements. As the risk is higher for the mortgage lender, the interest rates are higher for the borrower too. Another disadvantage is that borrowers can only borrow up to 80% of the value of the house and are required to take out mortgage insurance too. Low-doc loans are also only for people with a clean credit history. Borrowers who make repayments on time and can provide adequate financial statements and tax returns after a period of time can request to have the home loan rate reverted to a standard variable or fixed rate loan with a lower interest rate. Bad Credit Home Mortgage Loans If a prospective home loan borrower has a bad credit history he regularly missed debt repayments, has scores of unpaid loans or has been declared bankrupt he is not likely to get a mainstream home loan.
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More banks offering low deposit home loans

Adjusted for loans that passed from being in arrears to being settled because the property was sold, the percentage of prime loans more than 90 days in arrears increased from 1.33 per cent in the June quarter to 1.37 per cent in the three months to the end of September. However, Fitch says self-employed borrowers have been hit hard, which has pushed arrears among prime low documentation loans to a record 3.97 per cent - slightly higher than the previous peak of mortgage delinquencies in this segment reached during the peak of the financial crisis in the December quarter of 2008. This is a category of loans where borrowers meet the usual lending criteria, but are unable to supply sufficient evidence of their regular income, often because they are self-employed or contract workers with fluctuating earnings. The associate director in Fitch's structured finance team James Zanesi says higher mortgage repayments appear to be hitting the self-employed sector much harder than employees. "The three consecutive cash rate hikes ending in May 2010 modestly affected Australian prime mortgage performance in the third quarter of 2010.
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Qualifying for a Home Loan

Only 68 per cent of loans offered last year had such a high LVR. It dropped as low as 49 per cent in 2010 after the GFC. In contrast, the Reserve Bank of New Zealand from October 1 is requiring its banks to restrict high LVR mortgages in an attempt to take the heat out of New Zealand's property market. This will limit NZ banks to offering 10 per cent of their home loan portfolio in high LVR mortgages - considered to be 80 per cent or more. It aims to limit house prices and credit, while keeping interest rates low to support the overall economy. Macquarie Research senior economist Brian Redican doubts these so-called "macro prudential rules" will be introduced in Australia, at least in the short term. "If, however, NZ's adoption of macro prudential policy is deemed a success - and Australian house prices accelerate further - then it is possible that similar rules could be adopted in Australia in late 2014 or 2015," Mr Redican said in a note to clients. Reserve Bank of Australia assistant governor Malcolm Edey hosed down talk of a house price bubble in Australia at a conference last week, suggesting such talk was "unrealistically alarmist".
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