Banks to ease on lending restrictions

You may or may not have heard talk about the government’s plan to relax responsible lending laws and as first home buyers, these changes could mean you could land your dream home earlier than you first thought. 

Our current laws that we operate under today were introduced in the wake of the global financial crisis. Fast forward to 2020 and combine the effects of a global pandemic, lenders have been requiring an excessive amount of paperwork to get a loan approved which has sparked a debate that the process is now far too conservative at a time where a stronger flow of credit would be a positive move for the economy.

If changes are to go ahead it will mean borrowers will be more responsible for ensuring they can meet repayments rather than it being the responsibility of a lender to prove this. March 2021 is the earliest date this is being proposed and in preparation for this, some of the banks have begun to loosen certain things here and there in regard to getting approved.

Our friends at MAB had a recent example of a client whose loan application was originally to only cover a land purchase due to servicing. The client was going to continue saving in order to complete the build that was to follow. However, the major lender who received the original application has since made changes to their calculators which now means the client can afford the build. The application has been updated to include both the land and the build, and the new changes from the major lender means that the client is now eligible for the $15k HomeBuilder grant!

If you’re looking to begin on the finance journey towards home buying, we encourage you to contact MAB to get more information on your current financial position now that things are changing.

If the changes are approved, these are top items worth knowing:

Getting a loan will be quicker and easier

If you apply for a home loan today, credit decisions currently go through a one size fits all approach where a first home buyer will go through a one size fits all approach. This means a first home buyer will go through the same assessment process as a seasoned investor. Your living expenses in the last few years has also gone under majorly tight examination. We don’t believe Netflix and Spotify subscriptions reserve the type of scrutiny we have learned to expect from lenders. This will change.

A shift in responsibility

A key feature of the new obligations will be allowing lenders to rely on the information provided by borrowers unless there are reasonable grounds to suspect it is unreliable. Borrowers will be made more accountable for providing accurate information to inform lending decisions, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle. This change will help address the excessive risk aversion which has progressively entered the system, restricting the flow of credit.

Now, more than ever, it is critical to have an experienced broker on your side

One major outcome of the royal commission was best interests’ duty (BID) for mortgage brokers which ensures mortgage brokers act in the best interests of consumers when providing credit assistance. As BID operates at a higher level than the National Consumer Credit Protection Act, consumers can have confidence knowing that Brokers are legally obligated to work in their clients’ best interests. Their livelihood is reliant on not putting customers into unreasonable levels of debt. Lenders and banks do not have this obligation and so, we welcome broker companies like our finance partners, Mortgage Advice Bureau, as being the gold standard of protection in the lending process.

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