Mortgage approval rules are set to be relaxed to try to help the economy recover from COVID-19. But is this a good thing?
To help counter the effects of COVID-19 on the economy, the Federal Government has announced plans to loosen the responsible lending laws governing the loan approval processes. The idea is to make it simpler to buy a house or refinance your current home loan. With people continuing to buy homes and building new ones, the economy will get a shot in the arm that will hopefully help get us through the pandemic. At least, that’s the plan.
The proposed new laws may mean that lenders won’t have to be as strict when they verify a person’s financial details. Borrowers wouldn’t have to supply as much information, which should reduce the time and cost of getting an approval and provide fewer barriers.
But the current set of laws are there for a reason. Since the Global Financial Crisis more than ten years ago, the Government imposed much stricter lending laws to help protect both borrowers and the economy.
The GFC was blamed in part on the easy credit that had been going around. If you can remember the pre-approved credit cards that often appeared in your mailbox, you’ll understand. Many people and businesses ended up with loans they couldn’t realistically afford. When the credit crunch came, people couldn’t cover their repayments. The dominoes of debt all fell, which caused a catastrophic effect on the world economy.
Because of this, laws were introduced to ensure more responsible lending. This means that lenders now require very detailed records of an applicant’s finances, income and spending to ensure they can meet their repayments. Lending people only as much money as they can afford to repay is clearly the right thing to do. Still, many people believe the rules are too restrictive and make the process too complicated, including federal treasurer Josh Frydenberg.
“As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses,” Mr Frydenberg said.
“Maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan.”
The last thing anyone wants is for people to go and start borrowing too much. The proposed new laws may not require the lenders to go into as much detail as they must now. Instead, more of the responsibility will be on the borrower to make sure the information they provide is correct. It may be more of a case of buyer beware when you’re applying for a loan.
Once again, a mortgage broker is perfectly placed between the borrower and the lenders. Because we are here to act in your best interest, it’s our job to ensure you get the loan that’s right for you, including with an affordable level of debt. The mortgage broker ‘best interests duty’ that was recently legislated means that there will be legal obligations for me to find you a loan that is correctly matched to your circumstances.
The Government’s proposed new laws to try to help make it easier to secure a loan and buy a new home or refinance are important in helping our economy get through the current crisis. And there’s no doubt that Australians need advice and assistance more than ever.
By lessening the barriers, we’re looking forward to a more efficient process that removes complexity for both the borrower and the lenders. We can spend less time on verifying every minute detail, which will help the process move more smoothly and quickly.
Increasing our responsibility gives us greater control of the application process and means we can be of more service to you than ever, just when you need it most.
While the new laws are not expected to come into play until March 2021, it’s a good idea to get a gauge of where you stand and how any changes can increase your options. If you want to have a chat or ask any questions, please just get in touch.
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.