While Connective executive director Mark Haron has already shared his reservations regarding the impact – or lack thereof – of reforming responsible lending rules, he still unpacked how the proposed changes would interplay with Best Interests Duty (BID) if they were to be fully embraced by all relevant parties.
As Haron sees it, responsible lending was “one of the pillars” of the incoming BID obligations and so, if the former changes, the latter must too.
“Responsible lending was a first and foremast component of making sure a loan was not unsuitable for a customer,” Haron explained.
“If responsible lending obligations are being removed from a lender and mortgage broker perspective, we’ve got to think it will fundamentally change how brokers will implement their BID requirements too.”
The aggregator head expects the adjustment to come in the form of how brokers carry out their own affordability assessments.
“There will be a higher reliance on lenders’ calculation of affordability,” Haron said.
“Now, brokers make a significant number of enquiries and affordability calculations independently of how the lenders do it; moving forward, we anticipate this will change as brokers will be looking at the affordability aspect of a loan based more on how the lenders calculate loan affordability effectively.”
Haron acknowledged the shift is a subtle one.
“To some extent, brokers [consider lenders’ assessments] as part of BID anyway, because one of the first things they asses is which lender is able to do the loan for the customer. This is before they start getting into product comparisons and presenting lower cost options even, as there’s no point in doing that if that lender won’t actually do the loan for that customer,” he said.
“But for brokers, hopefully this would mean they can operate more efficiently and focus more on the customers’ needs and less on the lenders’ requirements for the scrutiny.”
From an industry perspective, Haron sees the key in terms of any changes to responsible lending being to make sure that mortgage brokers, apart from the BID, are not burdened with any higher obligations than what a lender would have if a customer went to them directly.
Fortunately, Haron feels the government has already “made it very clear” that removing responsible lending obligations would relax the lending process for lenders and mortgage brokers alike.