Buying a home is set to get a lot easier with potential borrowers no longer needing to provide a bank intimate details of their everyday spending habits.
Treasurer Josh Frydenberg has announced an easing of mortgage and credit lending rules in a bid to spark an economy recovery from the coronavirus recession.
Under existing rules introduced in 2009, banks are required to scrutinise the daily spending of potential borrowers to determine if they would be reliable.
Mr Frydenberg said these rules had discouraged Australians from borrowing, despite interest rates being at a record-low of 0.25 per cent.
‘Responsible lending has become restrictive lending,’ he said.
Buying a home is set to get a lot easier with potential borrowers no longer needing to provide a bank intimate details of their everyday spending habits. Pictured is a Brisbane couple at a house auction in 2020
The Treasurer is scrapping of key elements of the National Consumer Credit Protection Act, which Kevin Rudd’s Labor government introduced in 2009 at the height of the Global Financial Crisis.
Australia’s cheapest home loans
Bank of Us: 1.99 per cent two and three-year fixed rates (only available to existing customers and Tasmanians)
HSBC: 2.09 per cent, two-year fixed
UBank: 2.14 per cent for fixed one and three years
Prime Minister Scott Morrison’s Coalition government regards these 11-year-old responsible lending laws, designed to weed out unsuitable borrowers, as a risk in a slowing economy.
The government’s changes are set to put the onus on borrowers to tell the truth about their spending instead of forcing banks to heavily scrutinise their customers through intrusive questioning or third-party credit data groups.
This is designed to speed up home and credit approvals in a bid to encourage spending during a recession.
‘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.’
In assessing loans, the big banks often obtain credit scores on potential borrowers from two main credit reporting agencies, Experian and Equifax.
These third-party agencies keep data on consumers for seven years and offer up scores, out of 1,000 and 1,200 respectively.
Treasurer Josh Frydenberg (pictured on Friday) has announced an easing of mortgage and credit lending rules in a bid to spark an economy recovery from the coronavirus recession
Reserve Bank of Australia Governor Philip Lowe last month said lending rules were too strict and had discouraged the banks from lending.
‘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,’ he said.
Nonetheless, Australia’s debt-to-income ratio of 186.5 per cent is the second highest in the world after Switzerland.
Consumer group CHOICE, the Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre have slammed the changes.
CHOICE chief executive Alan Kirkland said easing lending rules would only see struggling Australians saddled with more debt.
‘We got rid of the idea of “buyer beware” in consumer law decades ago,’ he said.
The Treasurer and Finance Minister Mathias Cormann are scrapping of key elements of the National Consumer Credit Protection Act, which Kevin Rudd’s Labor government introduced in 2009 at the height of the Global Financial Crisis. Pictured is a house under construction in Melbourne
‘To make it the principle that guides lending in the middle of a recession has disaster written all over it.
‘Piling more debt onto people who can’t afford it has never solved an economic crisis.’
Despite the economic contraction, the value of Australian home loans rose by 8.9 per cent in July, following a 6.4 per cent increase in June, marking the biggest back-to-back monthly gains since the Australian Bureau of Statistics kept records in 2002.
First-home buyer numbers are at a decade high, following the introduction this year of the government’s $500million First Home Loan Deposit Scheme where borrowers can secure a loan with a five per cent deposit, with taxpayers underwriting the rest of the 20 per cent deposit.
On Friday morning the Commonwealth Bank, Australia’s biggest home lender, cut mortgage rates on its Extra Home Loans.
Owner-occupiers will get a 0.10 percentage point cut, taking CBA’s lowest variable rate down to 2.69 per cent.
Canstar’s group executive of financial services Steve Mickenbecker said home borrowers could save by choosing a no frills product over an offset account.