Watch your credit habits - Tougher lending on the way

New credit and privacy laws could make it harder and more expensive to get a home loan so get your credit habits in order now, writes Jackie Pearson.

October 27, 2009

A new national scheme for regulating credit is to be phased in between now and July 2011. It is designed to give consumers more protection from dodgy lenders by ensuring all credit providers adhere to responsible lending practices.

This sounds like good medicine for parts of the credit industry, but watch out for the side effects and make sure you’re ready for lenders to find out much more about your past and current credit habits next time you apply for a home loan.

What will the new rules do?
The new credit laws include a national licensing scheme for credit providers and brokers and will transfer responsibility for credit away from state governments to the Commonwealth.

For the first time mortgage brokers, reverse mortgages and margin loans will be properly regulated. You’ll also be protected by the new laws if you borrow to buy a residential investment property, not just a home to live in. And it should be easier to get a change to your credit contract on the grounds of hardship.

The Federal Government has indicated it will also change the Privacy Act in 2010 to give lenders more access to information about the number of loans you have, how much you’ve borrowed, your credit limits and repayment history.

Will the new rules make it easier to get a home loan?

Both the Australian Bankers Association (ABA) and Abacus (representing mutual credit unions and building societies) have criticised the new National Credit Code for being too “heavy handed”, forcing credit providers to go through more red tape when approving home loans. They say this could push out the amount of time it takes to approve home loans.

There’s also debate about whether the changes to the Privacy Act will make it easier or more difficult to get credit.

Will home loans cost more?

There’s also a range of views about whether the new laws will make credit products, including home loans, more expensive.

Consumer advocates fear some lenders will take advantage of having more information about your credit habits as an opportunity to persuade you to move credit cards and loans from other providers to them as part of your approval process for a home loan.

Abacus and ABA have also argued that loans may end up costing more because of the additional administrative requirements under the new national system.

How should you prepare for the new rules?

• Get your credit habits and history in order. If you haven’t done so for a while, contact organisations like Veda Advantage to find out your credit file.
• Always try to pay your bills on time and don’t make too many applications for credit. Keep records of what you earn and spend and do your homework about the approval process before applying for a home loan.
• It also pays to shop around and look for the loans that provide the best flexibility, features and price. That way if you have the best products in the market you’ll know when a new lender with access to your credit habits is offering you a better deal.

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