KnowHow founder Bushy Martin said the relaxation of lending laws is a good thing for borrowers, home owners and property investors, contrary to concerns from consumer groups.
The Australian government has moved to ease tough restrictions on how the banks can lend money from March 2021, opening up much needed access to capital for would-be property owners.
The refreshed lending laws will put the onus on the borrower to make sure they can manage their home loan, instead of the bank. It is a move that has drawn some criticism from consumer groups.
In a recent live ‘Bush Bite’ video on Facebook, Bushy said the fears are unwarranted.
“There has been quite a bit of reaction from some consumer groups that are concerned that these changes are going to open up the opportunity for banks and others to take predatory action on unsuspecting borrowers. And I think that’s perhaps a little bit of a premature commentary and is probably misrepresenting what the true position is going to be,” he said.
Bushy said the new lending laws intend to relax the assessment criteria for individuals to be approved for loans, which are currently extremely difficult to navigate.
“The proposed changes aren’t removing the need for banks and brokers and others to look after the borrower’s interests, but it is reforming the current legislation,” Bushy said.
“The reason they’re doing that is it has become so restrictive and so prescriptive in recent times that it’s almost impossible for a lot of people to get a loan. It’s gone absolutely forensic and anal in its detail to the point where the pendulum has swung way too far.”
Because banks have been forced to interrogate borrowers’ investment and home loan applications, Bushy said ‘ridiculous’ questions have been asked and ‘spurious, infinitesimal’ reasons have been given for denied applications. It has also significantly prolonged the overall process.
“The government has quite rightly recognised the context of this, because what it’s done is added months to the loan process. And when you’d refinance, that used to take a number of weeks, now it takes up to three or four months to go through because of this ridiculous anal investigation of applicants that removes all common sense from the whole equation,” he said.
Bushy cited a recent court case involving Westpac which triggered these changes, as it highlighted the ability for people to commit to paying off their home loans.
“The Justice that was running the case made the famous comment that ‘just because I can afford to eat the very best wagyu steak and drink the very highest quality Shiraz today, doesn’t mean that I’m not capable of adjusting my spending habits after I’ve got a home loan to make sure that I look after that priority now’,” Bushy said.
“Hallelujah. A bit of common sense coming through in relation to that, because all of us know that we’re happy to spend it when we’ve got it, but when we’ve got more important things to pay, we’re actually capable of doing that.”
Bushy also reminded listeners that regulations aren’t entirely going away, and borrowers’ best interests will still be a top priority, especially with finance brokers.
“It’s important to recognise though that by reforming the responsible lending regulations, that doesn’t mean they’re removing them totally because there’s a raft of other protections in place to make sure that the banks have got to act in the interests of the clients,” Bushy said.
“More recently, mortgage brokers like ourselves are coming under the introduction of what’s called the Best Interest Duty that will take place on the 1st of January next year (2021). And that places very strict statutory obligations on every finance broker to make sure they’re truthfully acting in a borrower’s best interest and looking after their interests first. And there are very severe penalties of over a million dollars if a finance broker doesn’t comply with that.
“So I guess my best advice is … because we have that Best Interest Duty and a whole raft of other obligations to make sure we’re looking after our clients, and given the complexity that are now associated with getting a home loan or investment loan, then your best protection is to get a good, savvy mortgage broker to help you to negotiate the maze.”
Despite some opposition, Bushy believes the reform of lending laws will be a win for every day Australians and the national economy.
“By putting you in control of your own spending and acknowledging that you actually do have the intelligence and the discipline to be able to manage your money, it means that once that comes through, it’s likely that you’ll be able to borrow more,” he said.
“This means that those people who haven’t been able to get a property will be able to, and we’ve had a lot of those over the last couple of years who stack up but just haven’t been able to jump all the hurdles.
“So, those people will be able to revisit and get back into property and there’ll be many more that will be able to borrow more and therefore secure better-quality property. So that’s going to be good for consumers, it’s going to be good for the property market because means there will be upward demand on property values, and as a consequence of that, it’s going to be good for the economy as a whole.
“So if you’re hearing a lot of these consumer groups up in arms about the pending risks with the reforms to lending laws, I’d look a little bit deeper.”
Read more about why the flood gates are opening for South Australian property.
KnowHow founder Bushy Martin shares regular, live ‘Bush Bite’ videos on his Facebook page sharing tips and tricks to cut costs, boost your savings and take advantage of opportunities in property. Connect with Bushy here.
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