Easing of Lending Restrictions
With the handing down of the Federal Budget last week there is much to digest and indeed the path to economic recovery is a long one; however, the government have been widely praised for their handling of the pandemic, particularly in regard to stimulus packages aimed at keeping the economy moving, and the JobKeeper payments enabling employers to retain staff.
One of the real game changers, in term of stimulus emerged last week; the market got really excited, by the announcement by Federal Treasurer Josh Frydenberg of sweeping changes to remove some of the overly restrictive lending rules. These changes will enable lenders to rely on borrower-provided information unless there are reasonable grounds to suspect it is unreliable; with the goal of making borrowing easier and in an effort to boost demand for credit. These changes are set to take place from March 1st 2021 (subject to parliamentary approval).
Borrowers will be made more accountable for providing accurate information to inform lending decisions, replacing the “lender beware” rules with a “borrower responsibility” principle.
Mr Frydenberg say it is essential more credit is made available to boost the economy, which has been kicked into recession by the coronavirus pandemic.
Housing Industry Association managing director Graham Wolfe says access to finance and banks’ lending practices are the biggest hurdles to home ownership.
“This plan does not solve all the problems around access to finance and credit, however HIA believes it is a move in right direction,” he said.
“Banks will still have to maintain appropriate application procedures and there is a mutual responsibility on the customer to supply accurate and truthful information when applying for a loan.”
Make no mistake this is going to make a critical difference to the health and vitality of the property market in 2021 and beyond…Whilst it may be seen by some as a backflip from recommendations that emerged from the banking Royal Commission – in these unprecedented times, the focus has clearly shifted from tight fiscal restraint to stimulus.
In summary, the changes involve:
- Simplifying the credit framework to allow consumers and business to obtain timely access to credit.
- Improving the flow of credit to support business investment and create job.
- Enabling a more efficient flow of credit to consumers and business via changes to the Australian credit laws. In essence, some of the onus regarding lending obligations will be loosened in terms of the banks, placing responsibility back in the hands of lenders, still within a framework of strong consumer protections.
What does it mean for property investors?
Depending on your individual financial circumstances it could mean the following:
- An increase in the amount of money you can borrow – some estimates suggesting by up to 20%
- A faster turnaround on approval times
- Price growth on existing portfolio driven by a surge in demand as more buyers enter the market due to easier access to credit and increased borrowing capacity
However, it is worth noting that it may be an opportune time to buy right now, prior to this kicking off, whilst there is still uncertainty in the marketplace – your negotiating power is heightened in the face of less competition.