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Revised Responsible Lending Laws – How Have They Impacted The Property Market? - October 2020

By Guest Blogger, Louisa Sanghera, Principal Broker,

Zippy Financial

 

It’s likely that you’ve heard about the federal government’s recent decision to wind back restrictive “responsible lending” laws, which were introduced in the wake of the Royal Commission.

These laws were well intentioned, as they were designed to ensure that borrowers don’t end up biting off more than they could chew financially. After all, the Royal Commission had revealed story after story of everyday Australians being ripped off or financially disadvantaged, due to banks’ and lenders’ free and easy attitude to lending money.

So, the decision was made to make it harder – much harder – for people to get a loan.

This was done by the way of introducing strict and onerous rules and regulations around how a loan application could be processed. Unfortunately, these laws put the onus on lenders and brokers to make sure the client was staying within their budget, rather than making the borrower themselves even partly responsible for their own financial decisions.

This resulted in brokers like me spending hours upon hours, reading through bank statements with a fine-toothed comb to make sure all of the UberEats, gym memberships and restaurant meals were accounted for in an applicant’s “estimated expenses” in their loan application.

 

What impact did this have on property markets?

As you can imagine, with such a massive shift in the way that banks and lenders assessed loan applications, it resulted in a number of “loan denied” conversations taking place with people who would have previously been approved.

The fact is that with fewer people able to borrow money, this took some of the steam out of the property market.

There is a clear link between credit controls and property prices because simply put, without access to a loan, most people can’t move forward with a property purchase.

Major capital city markets in Sydney and Melbourne were already starting to settle after a boom period anyway, and so when these restrictive lending laws were introduced – together with other regulations, which were designed to make loans more expensive and difficult to access for investors – we saw very slow price growth (or even price falls) in many markets.

Now, these overly restrictive laws are set to change again.

The Federal Treasurer has announced that in March next year, these laws are set to be wound back to make it easier for consumers to get a loan, once revised laws are passed?

 

What does this mean for you?

For many borrowers, this is going to be a game-changer, as they will suddenly be back in contention for a loan.

For other borrowers who are already able to access finance, I would urge you to consider taking action sooner rather than later.

Why? Well, as I mentioned earlier, property prices and access to credit are closely linked. By Easter next year, there is going to be a rapid increase in the number of people who can suddenly afford to go shopping for property.

Depending on the state of the economy by then, and where we are placed in our battle with coronavirus, it could be the case that tens of thousands of people are suddenly in the market to buy a property.

And what happens when demand for property surges? If supply doesn’t meet the demand, then prices go up…

That said, I’m no property expert, so you’d be better off chatting to Rich and his team to discuss the ins and outs of property price forecasts for 2021!

One thing I do know about is finance, and in my many, many years in this industry, I’ve never seen the mortgage market evolve so quickly – nor have I seen such a disparity between lender policies.

By this I mean, I can have a borrower in front of me who services perfectly and would easily be approved by Bank A, but who would be rejected by Bank B – simply because their appetite for risk and their policies are different.

This makes it extremely difficult for potential property buyers (or current owners who wish to refinance) to navigate these new lending requirements, which is why my advice is to speak to a broker for tailored advice.

Even if you won’t be ready to buy for another 6-12 months, consider speaking to a broker now so they can advise you on what to do (and what not to do) to get yourself “loan ready”. We may be able to help you get into a loan that saves you a small percentage on interest, or we may be able to find a lender willing to approve your loan when your bank says no. As a broker we always act in your best interests and best of all, our service is free! The banks pay our commission, not you – so you have nothing to lose, and everything to gain.

 

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