How will the changes to lending laws impact our market?

01 October 2020

This week, Treasurer Josh Frydenberg announced that more flexible lending rules will be implemented from March next year, in an attempt to stimulate the economy and make borrowing easier.

Following the 2018 Royal Commission into banks and their lending practices, laws around responsible lending have been quite strict, with the onus on banks to prove that a borrower could actually afford to repay the debt. Now, come March 2021 the responsibility around these laws will be placed more on the borrower, declaring that they are able to service the debt. This means that if you are looking to purchase your first home, or perhaps if you are an investor looking to grow your portfolio, you may find it easier to secure approval for a home loan over the coming months, but the responsibility around being able to afford this debt will be on you. The banks may not have to sift through your Afterpay receipts and calculate how many times you ordered UberEATS last month, but you will have to declare and accept that the information you have provided is true and correct.

As expected, there have been mixed responses to these changes, from positive views that agree this will help our economy recover more quickly and also help boost property markets around the country as well as those people looking to buy, including first home buyers. However, the negative commentary suggests that loosening the laws around this will create a pre-GFC style market where banks are able to lend with more risk and Australians will have access to large amounts of credit that they may not be able to repay. Consumer right advocates have said they are “flabbergasted” by the decision, and are unable to see what the Government is trying to achieve by freeing banks from their obligations of checks and balances when it comes to potential borrowers.

As for the property market, this change also suggests that more pre-approved buyers will enter the marketplace come March 2021, with more money to spend which will increase confidence and competition and ultimately send property prices north across the board. This leaves us with a nine month window from now until March/April next year when these changes may occur for savvy investors and buyers who have been sitting on the sidelines waiting for the right time to buy.

In a time where we are seeing ‘social proof’ as something that has a huge impact on a property campaign, this change in legislation and potential increase in open home numbers and bidding parties could see values increase quite sharply across the Northern Beaches.

As we wait to see if this legislation is firstly passed then implemented next year, we will watch this space with interest.

Note: This information is not to be considered financial advice and is supplied as an opinion only and cannot be relied upon in any way. You should always seek professional advice before embarking on any financial decision for your personal circumstance.