Responsible lending rules are on the cutting board this federal budget

Responsible lending rules are on the cutting board this federal budget

The responsible lending obligations that place the burden on banks to make sure a person can afford to repay the debt they’re being sold could be scrapped in the upcoming federal budget, Treasurer Josh Frydenberg has said.

The move is designed to make credit available to more people quicker as the country climbs out of its first recession in almost three decades, Mr Frydenberg said, in an opinion piece published in The Australian.

“Lenders have become increasingly risk averse and overly conservative. As a consequence, borrowers, irrespective of their financial circumstances, have faced an ever more intrusive, difficult and drawn-out approval process,” he said.

“The removal of responsible lending obligations (RLO) substantially will cut red tape and improve consumer outcomes.

“It will restore balance to the system after 10 years of regulatory creep that has seen the pendulum swing too far away from borrower beware to lender beware.”

Getting credit? Here’s what it could mean

Responsible lending obligations were introduced after the Global Financial Crisis (GFC). They prohibit financial institutions from selling, suggesting or helping a borrower sign a credit contract if the product is “unsuitable” for them, according to the Australian Securities and Investment Commission (ASIC).

They place the obligation on banks to inquire, verify and assess a customer’s financial situation before granting them a credit card, a personal loan or a mortgage, among other kinds of credit.

The Reserve Bank’s view on responsible lending obligations

Mr Frydenberg paraphrased select testimony from Reserve Bank of Australia (RBA) Governor Philip Lowe in his thinking behind eliminating responsible lending laws.

“I think the principles in the legislation are sound, but I think the way we've translated those principles into reality needs looking at again,” Dr Lowe said, before a standing economics committee in the house of representatives last month.

“... We can't have a world in which, if a borrower can't repay the loan, it's always the bank's fault. 

“On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it's not extending enough credit.”

He added fewer banks had expressed concerns “in the past three or four months” following new guidance introduced by ASIC. 

“Institutions are gradually coming to grips with those,” he said.

Four consumer groups denounce the plan

Consumer groups were quick to denounce the indication responsible lending obligations could be scrapped in the coming federal budget, due October 6.

The Consumer Action Law Centre, Financial Counselling Australia, Financial Rights Legal and Choice released a joint statement asserting borrowers need more income, not more debt.

“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term,” Karen Cox said, chief executive of Financial Rights Legal Centre, and an opening witness to the recent banking royal commission.

“Our service helped thousands of Australians drowning in debt and we continue to see legacy debt that predates the Hayne Royal Commission. How can we have so quickly forgotten the hard lessons from the GFC and the Hayne Royal commission?”

Businesses generally praised the move

Others welcomed the news, including property developers and investors, claiming the elimination of RLO will give the economy a much needed jump start at a time when it needs it.

“The measures announced by the Treasurer today appear focused on getting the balance right between a fit-for-purpose framework, which supports the flow of credit with regulatory oversight and consumer protections in place,” Ken Morrison said, chief executive of the Property Council of Australia. 

“A competitive and well-functioning credit market, subject to prudent regulatory oversight, will help more Australians buy or invest in property, improving housing supply and affordability and support jobs and economic growth.”

Only responsible lending practices will be scrapped, Treasurer Frydenberg said, and not other regulatory checks and balances introduced after the GFC.

Other financial reforms will stay in place

 “Importantly, the many additional protections the Coalition has introduced will remain in place, including the best interest duty for mortgage brokers, ASIC’s product intervention power, design and distribution obligations on lenders, and the continued free access to consumers to dispute resolution via the Australian Financial Complaints Authority,” he said.

“As the economy emerges from the COVID-induced recession, we know credit will be essential to the speed and strength of recovery. 

“These reforms are in pursuit of that objective.”

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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

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Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

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The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

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We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.