"The new policy aims to lessen the barriers borrowers are currently facing to acquire a mortgage and speed up the overall lending process." - Alexandra Kenward, Finance Manager
It will soon be easier for Australians to take out mortgages and refinance their home loans while small businesses will be able to access more money under Federal Government plans to change credit laws, to mitigate the effects of the COVID-19 pandemic.
Is a refinance in your best interest? Our team of lending specialists can find out for you.
But the changes will also remove some of the burden on banks to ensure people do not enter into loans they cannot afford to pay back.
The Federal Government said the current credit laws are outdated, particularly given the economy has been plunged into recession because of the pandemic.
It is proposing new laws to reduce verification procedures, meaning borrowers will not need to hand over as much information to banks and, in turn, shortening the length of time it takes to secure loans.
Borrowers would also be made more accountable for providing accurate information to lenders under the new laws, which will come into effect in March if they pass Parliament, and will replace the current practice of 'lender beware' with a 'borrower responsibility' principle.
Treasurer Josh Frydenberg said the changes would significantly cut red tape.
"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," he said.
"Maintaining the free flow of credit through the economy is critical to Australia's economic recovery plan."
The coronavirus crisis has seen hundreds of thousands of cash-strapped Australians defer their mortgages, with 1.4 million households now in mortgage stress.
As a result, the housing sector has been calling for the guidelines governing bank loans to be relaxed, arguing that will help the economy recover much faster.
'Consumer protection will stay in place'
Reserve Bank governor Philip Lowe has also weighed into the debate, telling a parliamentary committee last month the legislation needed to be examined again.
"The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad because the bank didn't understand the customer. If it had done proper due diligence — this is the mindset of some — the bank would never have made the loan," he said.
"So some of the banks have had this mindset, 'Well we can't make loans that go bad.'"
The topic has been a contentious policy area since the 2008 global financial crisis.
Among the range of factors contributing to the global financial crisis was that banks and other lenders were willing to make increasingly large volumes of risky loans for a range of reasons.
But the Government said strong consumer protections would be maintained under the law changes and credit providers would still need to comply with their existing licensing obligations to act efficiently, honestly and fairly.
"The key point is that consumer protection will stay in place," Mr Frydenberg said.
"But our current regulatory framework, with respect to lending, is not fit for purpose.
"It's become overly prescriptive, and responsible lending has become restrictive lending."
Consumers also protected from debt collectors
The Government will also move to change its credit regulations, allowing Australians involved in disputes with debt collectors to appear before the Australian Financial Complaints Authority, an independent dispute resolution body.
Debt collectors pursuing money will also be required to hold an Australian credit licence.
The changes will take place from next April, and Assistant Treasurer Michael Sukkar said they would protect vulnerable Australians.
"These reforms strike the right balance between protecting consumers while maintaining a viable sector to provide these products and build upon the successful implementation of ASIC's product intervention powers which protect consumers from predatory lending behaviour," he said
Have any further questions about the new policy? Contact us today!
Dalzell, S. (2020, September 25). The government wants to make it easier for you to get a mortgage — but there's a catch. Retrieved from https://www.abc.net.au/news/2020-09-24/government-looks-to-relax-lending-rules-mortgage-coronavirus/12700136