A new report by Canstar has found that two of the big four banks offer the best value low-doc loan products in a market that has traditionally been the speciality of non-bank lenders.
Canstar compared 59 loans from 18 lenders to determine which lenders offered the best value.
Westpac came out on top in providing “outstanding value” for variable rate low-doc loan, fixed rate low-doc loan and line of credit low-doc loan.
Close behind was ANZ, which offered “outstanding value” in fixed rate low-doc loan and line of credit low-doc loan.
AMO Group and Liberty Financial were rated highly for their variable rate low-doc loan products, while the Canstar report found YBR-owned mortgage manager Resi also offered outstanding value for its line of credit low-doc offering.
The report concluded that low-doc loans are a lifeline for Australia’s 1.2 million sole traders, who often struggle to provide proof of income due to their self-employed status.
“While there is an interest rate margin between a standard and a low-doc home loan, it’s a margin of only around 50 basis points, which is not excessive. And certainly low-doc loans are a terrific lifeline for the self-employed,” Canstar research manager Mitchell Watson said.
The research found that, on average, a standard variable low-doc loan will be 0.53 per cent higher than a low-doc home loan.
The standard variable rate for a home loan on average is 4.90 per cent, while for a standard low-doc variable it will be 5.43 per cent.
A three-year fixed term loan on average will be 4.53 per cent as opposed to 4.94 per cent for a low doc three-year fixed term loan.
The comparisons were based on a $350,000 home loan with a 60 per cent LVR.
Upfront fees were also found to be higher for low-doc loans with borrowers being required to pay an extra $337 on a $350,000 residential home loan with 60 per cent LVR.
The upfront fees on a variable standard home loan are $472 compared with $809 for a low-doc home loan.
Discharge fees were slightly higher for a variable low-doc home loan coming in at $297, compared with $263 for a variable standard home loan.
These costs were based on a residential home loan with 80 per cent LVR and $350,000 loan amount.
“The onset of the GFC decimated the low-doc loans market; in 2009 we researched 109 of these loans provided by 30 lenders – by 2010 ASIC advised that low-doc loans were just 0.70 per cent of residential lending. This year we are researching 59 loans from 18 lenders,” Mr Watson said.