Why it may be a lot less hassle to get a home loan next year

Back at the end of September, Treasurer Josh Frydenberg proposed that some considerable changes should be made to responsible lending practices. Although there will need to be a consultation process before any reforms are finalised, the proposed changes could substantially improve the chances of accessing credit and obtaining lending approvals in the not-so-distant future.

We’ve seen it more and more - being approved for finance has become increasingly challenging over the last few years. It's largely due to the introduction of regulatory updates like Comprehensive Credit Reporting (CCR) and tightening responsible lending criteria in the aftermath of the Banking Royal Commission.

Lenders have been requiring borrowers to provide unprecedented documentation, with loan assessment criteria that seems to be ever-tightening. Even the Treasurer’s September press release admits that change is needed, describing the current responsible lending regulations as having “…evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers”.

The proposed reforms to current responsible lending rules, aim to make lending more accessible while our economy starts to recover from the Covid-19 pandemic.  

What’s been the reaction to proposed responsible lending reforms?

Some consumer groups have voiced their concerns about relaxing responsible lending practices, however industry experts are welcoming the move.

For one, the Mortgage & Finance Industry of Australia (MFAA) is in total support of these changes. MFAA CEO, Mike Felton has said that; “while there may have been a strong rationale for the responsible lending principles contained within the National Consumer Credit Protection Act 2009 (Credit Act) following the effects of the Global Financial Crisis, the Act is no longer fit for purpose, and to leave it unchanged risks slowing our economic recovery.”

Why is change needed to current responsible lending criteria?

The responsible lending system, combined with uncertainty after the Banking Royal Commission on how to implement the criteria, has arguably resulted in unreasonable and blown-out credit application processing times.

Proposed updates to responsible lending would help to address the currently over-the-top, deep dive into daily living expenses of borrowers when assessing them for a loan. At the moment, there’s little consideration given to borrowers being able to adjust spending habits to manage their loans and repayments. All of this has unnecessarily, but significantly restricted the flow of credit.

What can we expect to see if reforms are implemented?

If these updates to responsible lending are implemented, we would expect to see much faster turnaround times for qualified borrowers. Recent turnaround times have been a major issue with lenders and a point of frustration for mortgage brokers like us, as well as many borrowers across the Gold Coast, Queensland and throughout Australia.

‘Best Interest Duty’ will make mortgage brokers even more accountable

Related to responsible lending, from 1 January 2021, borrowers can gain even more confidence in using mortgage brokers. That date marks the official implementation for mortgage brokers to operate under statutory obligation called ‘Best Interests Duty’ (BID). This new duty of care is higher than even responsible lending had aimed to deliver and is being implemented as part of recommendations out of the Banking Royal Commission.

Under the BID, all customers seeking lending assistance through a mortgage broker (and particularly those who are more vulnerable), will benefit from the protection of an unmatched higher duty that all mortgage brokers must abide by. While Mortgage Choice mortgage brokers including our team, have historically applied the rules outlined by the BID across our businesses, it will hopefully give consumers increased trust in the mortgage broking industry.

Could the relaxation of responsible lending criteria pose any problems?

Although the removal of this outdated and overly-complex criteria is necessary, it’s still important to make sure customers receive consistent and accountable service levels – especially from lenders.

It’s also important for borrowers to take some responsibility for their own decisions and commitments, but we know the unexpected can still certainly occur. There’s never been a better example of unpredictability than this year’s pandemic experience. While some borrowers may be at increased risk with relaxed responsible lending, borrowers using a lending specialist (such as an experienced mortgage broker) will have the advantage of professional guidance towards a responsible, ‘best interest duty’ approach. 

Want to learn more? Have a chat with our team

It is undoubtedly encouraging to see our government taking steps to help the flow of credit through economy, while making sure that vulnerable customers continue to be protected.

If you would like to discuss more about the proposed responsible lending changes or best interest duty obligations being introduced within our industry, you can call us on 07 5676 6433 for Mortgage Choice in Broadbeach and 07 5594 6746 for our Mortgage Choice in Arundel office. You can also book a free, no-obligation appointment online with one of our mortgage brokers directly at our locations - click to book for Broadbeach and Arundel.