What the changes to responsible lending laws mean for you

Currently, when you apply for a home loan, the lender meticulously goes through all your living expenses. That’s because, under the National Consumer Credit Protection Act 2009, they have a legal responsibility to make sure you can repay the loan without falling into ‘substantial hardship’.

Known as ‘responsible lending obligations’, these laws were introduced in Australia following the 2008 Global Financial Crisis. But, with COVID causing a global financial crisis of its own, these laws are now being overhauled.

New, more flexible rules are proposed to come into effect in March 2021.

So, what are the changes to responsible lending obligations? And, more importantly, how will they impact you?

From ‘lender beware’ to ‘borrower beware’

The federal government wants to make it easier for Australians to access credit. To do that, they’re shifting the onus from the lender to the borrower to prove they can service the loan. As a result, lenders won’t have to go through your bank statements line by line to check on all your non-essential living expenses.

That said, lenders will still need to comply with APRA’s lending standards. So, your income, credit history and other financial details will still get verified.

What this means for you

As always, these new rules have both benefits and risks attached to them.

On the upside, it should be quicker and easier for you to take out a mortgage or refinance your home loan as lenders won’t need to scrutinise your takeaway coffee habit. Instead, it’s on you to supply the lender with accurate information about your ability to repay the loan.

But this places a bigger burden on you – as you don’t want to take on a debt you can’t afford.

So how do you mitigate this risk while taking advantage of the benefits?

By doing your homework more than ever.

That means going through your income and expenses to work out how much you can comfortably afford to repay. And, keep in mind, big life changes can quickly throw a spanner in the works – be this kids, illness or retrenchment.

A good mortgage broker can help

A good mortgage broker doesn’t just find you a mortgage at the lowest rate possible. That’s because the right home loan for you should suit your individual circumstances – both now and in the future.

So a good broker spends time with you to understand your financial situation as well as your needs and goals. Then, they can advise you on all your mortgage options and their risks and merits, so you make a well-informed decision.

Looking for the best broker in Sydney? Eventus Financial has been awarded Mortgage Broker of the Year 2020 – the second time we’ve won this prestigious award. Schedule a no-obligation consultation with Alex to find out how we can help you with your home loan.