3. Re-establish better income status
Many property investors have been using low-doc or no-doc borrowing to acquire properties in the past, but this lending space has changed significantly since 2008.
No-doc loans are technically not being offered by any institutional lenders, low-doc loans are sitting at 60% with a few exceptions still at 80%. Overseas experience shows that it is possible that low-doc loans will be completely taken off the market soon, especially when there is not sufficient credit. Lenders would lend to the best quality borrowers, and low-doc borrowers are considered lower quality than full-doc borrowers.
Borrowers get into low-doc borrowing for many reasons, some due to employment status such as self-employed, others due to complicated financials, and we also see some borrowers simply couldn’t be bothered to provide financials because the interest rates difference was quite small between low-doc and full-doc loans in the past.
The trend is that low-doc loans will be at a higher premium if they are still to be offered in the future. For property investors who are still actively acquiring properties, there will be financial benefit to get full-doc loans rather than low-doc loans in the near future, hence looking after your income status can become important in the next few years.
We have seen situation where a client who is currently a contractor being unable to refinance his loans from low-doc to full-doc, and some of his low-doc lenders have gone out of business. For him to take advantage of the current lower full-doc fixed interest rate, he needs to become a full-doc borrower again, which means he needs to go back to a full-time permanent job position with less income. However the mortgage repayment savings created from the refinance will substantially outweigh the loss of his work income.