What the rolling back of Responsible Lending laws mean for your finance
To encourage a more buoyant credit market and therefore boost the economic recovery from the COVID-19 induced recession, Treasurer Josh Frydenburg recently announced Responsible Lending laws introduced in 2009 will be relaxed. So, what will this mean?
Responsible lending guidelines were imposed in the wake of the 2008 Global Financial Crisis and were based on the guiding principal of “lender beware’ whereas the changes are now shifting back to the traditional “borrower beware” lending climate. This puts more ownership of responsibility back on the borrower, enabling banks to remove more stringent credit assessment processing that has impacted the ability for some to access credit.
Some of the major changes we expect to see include:
- Some of the responsibility of the borrower’s capacity to pay will shift to the borrower.
- Borrowers will need to take ownership to understand their finances to ensure a loan is right for them
- Increases in borrowing capacity may result.
- Less rigorous financial assessment may mean less paperwork and easier application process.
- Borrowers will have to be truthful regarding their position with the bank.
- Applicants that were previously unsuccessful to obtain credit may be approved with the regulations removed.
Don’t however think that with the abolition of Responsible Lending laws, you can expect an climate of “Irresponsible Lending“– that’s far from the case. In February 2020 legislation for the Best Interests Duty for Mortgage brokers passed in both houses of parliament. This is a statutory obligation for mortgage brokers to act in the best interests of consumers, prioritizing their interests when it comes to credit assistance. Interestingly, this legislation is not applicable to banks.
If the proposed relaxation of Responsible Lending does pass, the changes are set to come into effect by March 2021. So, if you are finding it difficult now to access credit, there may be scope with the impending removal of current tight lending restrictions.
For more information or to see what you may potentially be able to borrow, contact one of our mortgage brokers today.