Image source: Twitter
Image source: Twitter
Treasurer Josh Frydenberg will announce on Friday the government will relax tough lending laws imposed on banks and move the onus on to the borrower, making it easier for Australians to get a mortgage.
Australians will soon find it easier to take out a mortgage under Federal Government plans to relax credit laws in a bid to get the economy moving amid the COVID-induced recession.
The changes will remove the burden on the banks to ensure people don't take out home loans they can't afford and shift the responsibility onto the borrower to be honest about their ability to service a loan.
This means banks will need to rely on borrowers to be honest about their income and expense information provided and won't face penalties if borrowers lie on their mortgage application.
Mr Frydenberg said the changes will speed up the credit approval process and remove a lot of red tape.
"As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses," Frydenberg said.
"Maintaining the free flow of credit through the economy is critical to Australia's economic recovery plan."
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner-occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
The changes come off the back of Reserve Bank governor Philip Lowe telling a parliamentary committee last month that the responsible lending pendulum has swung too far.
“We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault,” Lowe said.
“On a portfolio basis, we want the banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad, it means it’s not extending enough credit.
“The pendulum has swung a bit too far in blaming the bank if a loan goes bad because the bank didn’t understand the customer. [The mindset of some] is that if the bank had done proper due diligence, the bank would never had made the loan.”
Writing in The Australian, Mr Frydenberg said the banks have taken responsible lending obligations too far.
"It is common for a person applying for a mortgage to be asked to explain individual discretionary spending and to provide verification of Netflix and Spotify subscriptions, UberEats or MenuLog usage or other details — all for the lender to be confident that it cannot be held liable in the event the borrower cannot repay the loan," Mr Frydenberg said.
"It is no surprise that Australians have found it more difficult to obtain the credit they are seeking, with many giving up."
Consumer groups slam announcement
Already the response to the announcement has been mixed, with many consumer groups slamming the move to remove responsible lending laws.
Karen Cox, CEO of Financial Rights Legal Centre, said what people need right now is more income - not more debt.
"The problem people are having right now is too much debt and not enough income. The Government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a short-sighted fix for a flailing economy," Ms Cox said.
“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term.
“Our service helped thousands of Australians drowning in debt and we continue to see legacy debt that predates the Hayne Royal Commission. How can we have so quickly forgotten the hard lessons from the GFC and the Hayne Royal commission?”
CEO of Consumer Action Gerard Brody meanwhile said relaxing credit laws isn't the answer.
“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace. And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings," Mr Brody said.
“Leaving people with more debt they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families.”
Other groups including the Customer Owned Banking Association (COBA) have welcomed the announcement.
“We look forward to seeing the detail of the Government’s proposals but the objective of simplifying unnecessarily complex regulation has our strong support,” said COBA CEO Michael Lawrence.
"Customer owned banking institutions have always been responsible lenders – putting our customers first is part of our DNA. We certainly don’t need prescriptive and complex laws to make sure that we lend responsibly.
“The Government is right to take decisive action to promote lending at a time of great uncertainty and the biggest peacetime economic contraction since the 1930s."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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