Fears of a sub-prime like meltdown seem far from lenders minds as Australia's low-documentation (low-doc) home loan market flourishes.
The low-doc market, which has doubled in the past four years, now makes up 16 per cent or $37.9 billion of total housing lending commitments.
"Market statistics forecast this to grow to over $54 billion by 2011," Cannex financial analyst Harry Senlitonga said.
There are now 385 loans offered by major banks, regional banks, credit unions and building societies, as well as the traditional non-bank lenders.
"Loans in which borrowers self-certify their repayment capacity are inherently riskier than their full-documentation counterparts and this is confirmed, for example, by the higher arrears rates currently observed on securitised low-doc lending," the Australian Prudential Regulatory Authority (APRA) Credit Standards in Housing Lending report said.
The APRA report also noted that loan to valuation ratios (LVR), the formula they've devised based on experience of loan defaults that attempts to minimise risk from borrowers defaulting, showed that lenders in its survey appeared to take a more cautious approach to approving low-doc loans.
The LVR for low-doc loans was at 54 per cent, compared to 67 per cent for normal lending.
Low-doc home loans are available with LVR ratios that reach up to 100 per cent, although bank products are capped at 80 per cent.
