Low doc market in fastest loan growth

The returns to lenders from low doc loans and sub-prime loans more than compensate for the additional risk of any loan default, an analysis of this fast growing segment of the home loan market by Macquarie Bank concludes. Macquarie’s analysis found that with mortgage demand easing, more good quality credits are being missed as the labour market shifts to contracting, self-employment and other careers that are difficult for banks to assess with standard models. Macquarie estimated growth in low doc and sub-prime lending at 15 per cent a year. The investment bank estimated a potential low doc market of $40 billion to $50 billion a year, and a potential market for non-conforming mortgages of up to $20 billion to $30 billion.

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