The CEOs of major banks are urging the Federal Government to relax responsible lending standards, which were established following the Banking Royal Commission to safeguard borrowers.
“What the big bank bosses are saying, they are not being very specific, they are alluding to two big pieces of regulation”, reports ABC’s Nassim Khadem.
“One is the regulations that were introduced post the Banking Royal Commission. That’s when we saw all these horror stories emerging of people being lent to that shouldn’t have gotten loans and ended up in financial strife”.
“So, those laws are part of the laws they are talking about that should be changed”.
“The other regulations that apply here are buffers that are placed when you try and get a loan”.
“So, when a bank assesses you on your ability to get a loan, they look at whether you can pay an interest rate that is three percent above the current interest rate”.
“So, what they are talking about here is potentially loosening or removing those buffers for people who are refinancing and possibly also for people who want to get a new home loan”, Khadem said.
However, consumer groups are warning against changes as new data reveals the number of people in mortgage hardship is reaching crisis levels.
“Consumer groups don’t want to see a repeat of what we saw during the royal commission times”, Nassim Khadem reported.
“They say the rules that we have got in place came because of all of these problems. We don’t want to revisit those problems”.
“We already have a high number of cases coming to us about people in stress, and that is based on pretty stringent rules we already have in place currently”.
“So, don’t change the rules”, Khadem said.
I have no issue with getting rid of the mortgage buffer for mortgage refinancings.
These borrowers are already ‘in the market’ and were assessed for serviceability when they first took their loans out.
Trapping them with their existing lenders at uncompetitive rates is bad for financial stability since it could unnecessarily drive more forced sales.
Creating ‘mortgage prisoners’ is also bad for competition since lenders will have little incentive to offer a better rate when they know their borrower cannot leave.
That said, unwinding responsible lending rules established following the Banking Royal Commission would be a retrograde move that would weaken financial stability and pour fuel on house prices.
While easing credit for an individual borrower will increase their purchasing power and enable them to enter the market sooner, offering everyone easier credit will merely pump up home prices, making housing more expensive for all.
This applies to all demand-side housing policies, including first-time homebuyer assistance. They raise property prices and are ultimately self-defeating from an affordability perspective.
The banking sector seems to have found a strong ally in Liberal Party senator Andrew Bragg, who has advocated for Australians to use their super to buy a home, as well as an easing of capital adequacy rules to make it easier for banks to lend to home buyers.
Soon, they will lobby for loan terms to be extended to 50 and then 70 years. Anything to inflate the property bubble further.
