Recently, the Federal Government announced that it would be removing responsible lending laws, in a bid to free up credit and help boost the economy.
What do these changes mean for borrowers?
Responsible lending laws were introduced on the back of the Global Financial Crisis as part of the National Consumer Credit Protection Act 2009.
These laws put the onus on the lender to ensure that a borrower would be able to service a loan, or the bank could be held responsible.
The changes led to banks becoming overly pedantic on things such as living expenses which can at times be a grey area. With responsible lending laws being removed, the lender has more room to accept a borrowers claimed living expenses and if they are unable to meet their loan repayment, the bank won’t be held accountable.
For many, this is a good thing as it helps remove much of the red tape around the application process and could potentially speed up borrowing significantly.
With interest rates continuing to fall, we’ve already seen a sharp spike in the number of people looking to apply for loans and going through the approval process. This has started to cause long delays with a number of lenders and has even forced people to push back settlement dates, which impacts all parties involved in the property transaction.
According to Treasurer Josh Frydenberg, the changes have been made to help the economy recover from the lockdowns caused by COVID-19.
“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,” said Mr Frydenberg.
“Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs.”
At this stage, the proposed changes will still need to make their way through parliament, however, Mr Frydenberg suggested they would be implemented by March 2021.
What Do the Changes Mean for Borrowers?
Unfortunately, removing responsible lending laws doesn’t mean that everyone will be able to take out large loans that they won’t be able to repay.
Borrowers will still have to demonstrate that they can service a loan and banks will still be making sure they will be paid back. Lenders are still be required to meet APRA’s lending standards, which require sound credit assessment and approval criteria.
What it does mean is that the process will be faster and the credit easier to access.
For many homebuyers in Australia, this is a positive change and with interest rates continuing to fall, this might be a good time to speak to your mortgage broker.
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