Lending reforms a step in the right direction

by Antony Field06 Nov 2020

The loosening of the ever-tighter loan restrictions introduced following the royal commission is expected to take place in the first quarter of 2021.

Describing it as a move that will stimulate the industry and the economy at large, FBAA managing director Peter White believes it will be welcome news for the many borrowers who can afford mortgages but have been locked out of the housing market due to overly restrictive criteria.

“Anything that puts the accountability back onto the borrower is just common sense,” he said of the planned lending reforms, which are set to make borrowers more accountable for their own funding decisions.

The current situation, which makes banks accountable for information provided by a borrower, has resulted in overzealous investigations as banks try to mitigate the borrower’s wrongdoing.

“It’s become an exercise by lenders to pass judgment on a borrower’s discretionary spending, which isn’t the role of a lender,” White said.

“All a lender should care about is the capacity of the borrower to service the loan, and they already have many criteria on which to base that. This won’t change. The government has also announced changes to better protect vulnerable consumers, and the industry supports this.”

The reforms should have a positive impact on the housing market and drive consumer confi dence up, said Adrian Kelly, president of the Real Estate Institute of Australia, as the cost and time for consumers and businesses to access credit will be reduced as lending moves away from the ‘one size fits all’ system. They will also provide some reassurance for those who have held off on listing their properties due the current recession.

Kelly said the government’s move would “allow sellers to list their properties knowing the buyers will be out there”, which would put a floor under demand.

“By improving demand, the government is giving prices less chance to fall, meaning the doomsday forecasts can be archived,” he said.

“This is a good signal, even for people in Melbourne. They will know that the current restrictions are not permanent, and this policy change flags better circumstances for sellers and buyers.”

Denita Wawn, CEO of Master Builders Australia, is hopeful that winding back regulation “to a more reasonable position that allows the market more flexibility to approve housing finance” will see the banks reconsider their LVRs to help borrowers overcome the deposit gap.

“We expect that loan applications for borrowers should also become less cumbersome ... and it should help streamline the processing of HomeBuilder applications on top of pre-approval processes, which have been adopted in some states,” she said.

“Access to finance, land titling and planning approvals can substantially delay building of new homes, and measures are needed to remove these impediments and speed up processing of HomeBuilder applications. While the announcement should open up access to mortgage finance, we now need state and territory governments to activate their option under the agreement with the federal government to extend the HomeBuilder construction deadline from three to six months, as has already occurred in Victoria.”

“By improving demand, the government is giving prices less chance to fall, meaning the doomsday forecasts can be archived” Adrian Kelly, president, Real Estate Industry Association

Meanwhile, Customer Owned Banking Association CEO Michael Lawrence said he was looking forward to seeing the detail of the government’s proposal, and he agreed that simplifying complex regulation would be a step in the right direction.

“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,” he said.

“This environment requires policymakers and all stakeholders to bring a new lens to all regulatory settings. There are multiple layers of regulation applying to lending, so simplifying these regulations while maintaining strong consumer protection, particularly for vulnerable consumers, is very welcome. Overall, this is good news for borrowers and lenders, as applying for a loan will be a simpler process.”