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The new national consumer credit protection laws have reduced lender appetite for low doc (low documentation) loans, making it more difficult for self-employed investors to secure finance.
Data from Loan Market has found that applications for low doc loans have fallen to just five per cent of overall loan lodgements since the beginning of the year.
Loan Market chief operating officer Dean Rushton said prior to the implementation of the new regulation, low-doc loans accounted for 10 per cent of the company’s loan lodgements.
“Under the new National Consumer Credit Protection (NCCP) legislation, lenders are being more cautious when lending to the self-employed and small business owners who, unlike PAYG borrowers, do not have straight forward pay slips or group certificates to verify their annual income,” Mr Rushton said.
“As a result, many hard working self- employed people and small business owners are finding it harder to get finance.”
Mr Rushton said interest rates for low-doc loans are usually higher than the standard variable rate of a full-doc loan, the minimum deposits are higher, additional fees are charged and the loan-to-valuation ratio (LVR) has to be lower.
He said Loan Market fully endorsed the objective of the NCCP laws to counter irresponsible lending practices, which included misuse of low documentation criteria.
“The issue is that many Australians with genuine credentials to obtain finance are also being impacted,” Mr Rushton said.
“The reality is that lenders had already adjusted their internal credit criteria for this type of lending following the GFC to lower the risk associated with less documentation. The interpretation of the NCCP legislation has further tightened the criteria.
“These same small business owners are already struggling with the impact of successive rate rises on retail sales and are now being hit with tougher lending conditions.”