If you want a prime example of why Australia is the property equivalent of a narco state, read on below.
We are only around 18 months out from the Kenneth Hayne banking royal commission, which lambasted Australia’s banks for irresponsible lending. Yet Treasurer Josh Frydenberg has amazingly announced the scrapping of responsible lending laws:
Responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac will be scrapped for banks, which will be subject to less onerous credit rules to encourage the flow of loans and boost the economic recovery from the COVID-19 recession.
In a shift from “lender beware” back towards traditional “borrower beware”, Treasurer Josh Frydenberg will on Friday announce the government will in effect dump the responsible lending law that was imposed by the Rudd Labor government in 2009 following the American subprime loan crisis…
The deregulation responds to concerns of banks and Reserve Bank of Australia governor Philip Lowe, that following the Hayne banking royal commission and ASIC’s pursuit of Westpac in the “shiraz and wagyu” lending case, banks became too conservative and squeezed the flow of credit…
Greater emphasis on self-responsibility means lenders will not be penalised if borrowers mislead on their loan applications, enabling banks to rely on income and expense information provided by borrowers and speeding up the credit approval process.
The major banks have won the argument that responsible lending has squeezed access to credit, with the Morrison government set to change the rules 18 months after Royal Commissioner Kenneth Hayne implored the financial services industry to “apply the law as it stands”…
The Hayne royal commission castigated the banks for the allegedly widespread practice of what law firm Herbert Smith Freehills has called “credit-mash”, whereby processes of inquiry and verification were combined into a single assessment process.
It also took issue with reliance on the so-called Household Expenditure Measure (HEM) as a substitute for proper inquiry…
Coalition MPs including joint parliamentary committee on corporations and financial services chairman James Paterson had blasted the responsible lending regime as “confusing for consumers” and criticised ASIC’s guidance to the market.
We’ve obviously been negative on Australian property in 2020 and 2021 due primarily to:
- Collapsing immigration and rising supply;
- High unemployment; and
- Falling incomes as emergency policy support is unwound.
We’ve also argued that with mortgage rates now at rock bottom, any further rise in property values would have to come from income growth (other things equal).
However, with banks now permitted to lend to anything with a pulse, who knows? The sky could be the limit with the Aussie property market engulfed into a giant sub-prime bubble.
If you want proof that Australia’s economic managers are really just bubble managers, here is your smoking gun.
This is a watershed moment in Australian banking and property history.