It is now common knowledge that the low doc loans of old have gone. Previously if you had an ABN, had a 20% deposit, and completed a self-certified income declaration then it was fairly simple to get a low doc loan.
As the low doc market matured many of the major banks were lending at interest rates the same as or similar to normal full document home loans. This scenario could not last as it did not take into account the risk profile of low doc loans.
With the advent of the GFC and responsible lending low doc loans changed. This was a change for the better. What it did mean was income was now verified to a higher degree than previously.
This didn’t mean a return to full tax returns. It did mean alternative ways were looked at in substantiating income.
These generally include one of the following:-
- a letter from your accountant For many small businesses that use an accountant, who better knows their business circumstances than their regular accountant.
- 12 months BAS statements These statements give a good indication as to how the business is actually travelling. Given they are done every three months they are also timely.
- 6 months business bank trading statements showing the income coming into the business. These statement show the inflows and out flows of the entity generating the income.
The alternative ways of assessing income, including the insistence of two years abn and gst registration by most lenders now mean that income verified under low doc loans is more thorough.
Having the abn and gst registration for two years shows the business is ongoing.
There are commentators that predicted the demise of low doc loans for many years. At this stage they have been proved wrong.
Low doc loans are and always will be a part of the home loan market. Many low doc loans are still be written and this shows no sign of changing.
A lot of pundits forget that many of Australia’s small businesses are Australia’s wealth generators!