In welcome news for the property industry and property investors/homeowners alike, responsible lending laws are set to be wound back in a bid to allow banks to lend money to customers more easily and encourage economic recovery, Federal Treasurer Josh Frydenberg announced last week.
The overly restrictive ‘responsible lending’ laws legislated by the Rudd Labor Government in 2009 set strict and inflexible criteria on how lenders could assess a borrower’s ability to service a loan, even if they could prove themselves willing and able to do so.The proposed reforms involve a shift from a “lender beware” model to a “borrower responsibility” model, allowing lenders to rely on the information provided by borrowers.
“What started a decade ago as a principles-based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers. These changes will make it easier for the majority of Australians and small businesses to access credit, reduce red tape, improve competition and ensure that the strongest consumer protections are targeted at the most vulnerable Australians.” Treasurer Frydenberg said.
These changes, in effect, remove the Australian Securities and Investments Commission’s (ASIC) responsible lending remit, with the regulator no longer authorised to exercise its enforcement powers.
However, the government has stressed that lenders would still be subject to regulation from the Australian Prudential Regulation Authority (APRA), which will continue to issue guidance regarding sound credit assessment and approval criteria.
What does this mean for you?
In a nutshell, it means you’re likely to be able to borrow more money and go through less forensic scrutiny when approved for finance.
Rather than relying on the banks ‘standard format’ for servicing debt (which included things like servicing private school fees for the 30-year duration of the loan rather than just the remaining years your children attend school!), the onus will be on borrowers to declare complete and accurate information as the responsibility will now fall on the borrower to show they can service their loans.
Providing this is passed by parliament, from 1 March 2021 lenders will no longer be scrutinizing your bank transactions to see how much you spent on clothes, holidays and Uber Eats!
How will the property market be impacted?
Home lending is critical to the recovery of our economy and these reforms will go a long way to underpin the rebound in our property markets in 2021. Making borrowing easier and more efficient for everyday Australians will act to boost demand for credit and stimulate the economy, helping the country to bounce back from the pandemic driven recession.