Responsible? Who decides?

The term “responsible lending” has been used a lot but what seems responsible to one may not be responsible to another.

A government Senate committee is currently reviewing responsible lending laws after the federal treasurer announced plans to ease the flow of credit to households and businesses last September.

In March 2017 APRA imposed a cap on interest-only loans issued by lenders along with a reduction of the loan to value ratio. Housing prices were soaring and the regulatory body was concerned about housing affordability and the impending financial pressure on borrowers once the interest-only period had expired.

Lending criteria tightened dramatically, with lenders sifting through the minutiae of borrowers’ spending habits with a fine-tooth comb and determining their ability to service the loan from a far more conservative starting position. Loan approvals took a lot more time and some borrowers, who had been granted a pre-approval from their lender, now found that they no longer qualified for the loan.

Housing prices responded in a downward direction as investors began to retreat from the market and competition for property abated.

Last year was like no other with the world battling the coronavirus pandemic, which continues today. However, despite the economic adversity that has accompanied this pandemic, the value and number of new home loans have reached record highs. In fact, Sydney house prices rose by 4% over the twelve months in 2020.

Some bodies have raised concerns about the treasurer’s suggestion to relax some of the lending criteria. One of the fears is that some borrowers could be granted access to the credit they cannot afford with no repercussions for the banks. Another is that, as the government ceases COVID-19 support payments, those that have become reliant on them will look to acquiring credit to keep themselves afloat.

Of course, there is also the issue of interest rates, which are currently at a record low. Lower interest rates generally drive house prices up, which can trigger a rush on buying as people fear property will become out of reach for them. This inspires borrowers to take on more debt as they endeavor to afford their ideal dwelling. This is why the RBA monitors all aspects of adjusting interest rates closely and the next 12 – 24 months will be a very interesting period for the bank in terms of our economic stability.

Loan approval times have blown out as the banks have been inundated with applications. Mortgagees are not only looking to shift their place of residence but to refinance their current loan to align with the more attractive rates on offer now.

To avoid disappointment and fortify your position, it is advisable to get your finance in order before, or as soon as, you decide to purchase a new home. The majority of properties in our area are sold via auction and in most cases today, the period of an auction campaign is not enough time to secure pre-approval to enable you to participate in the auction. If you need advice on obtaining finance and facilitating your purchase I can help you.

In the meantime, if you are thinking of selling, now is one of the best times of the year to start the conversation and planning. Realestate.com.au reports the highest number of searches in January each year and there is a clear strategy to monopolize on this. We achieve some of our strongest results of the year by following a proven timeline. Take the opportunity to gain from this advantage and my expertise and contact me now.

If, however, you or anyone you know would just like to discuss the current value of your home and the best strategy to get you the best price when you come to sell, you can contact me any time.

We have sold almost all of our stock last year and below are a few properties we are currently marketing for sale. We have some exciting properties coming soon so watch this space!

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Published August 24, 2021

By Belinda Cassano