Consultations are still taking place, but it seems that Australia’s financial services regulator, ASIC, plans to tighten the responsible lending rules.
ASIC, it appears, wants Australia’s banks to take a closer look at borrower expenses before approving mortgages.
If nothing else, this means that Australians who apply for a home loan at one of the country’s banks will have to wait longer for a decision. Yes, even longer.
But there are also likely to be two more consequences. First, the closer banks look at applications, the more likely they are to find things they don’t like (however ridiculous they might be). Second, the harder credit officers have to work to approve loans, the more likely they are to take the easy option of saying no.
The big four banks are up in arms
Australia’s big four banks, which provide about three out of every four home loans, are already feeling the impact of the tighter lending rules that have been introduced in recent years.
This is reflected in the latest banking statistics. In the year to May, the country’s biggest lender, CBA, grew its mortgage volumes by only 3.5%. Meanwhile, NAB posted growth of 2.5% and Westpac 2.4%, while ANZ actually went backwards, by 1.2%.
So the big four are up in arms about ASIC’s proposals, which could harm their volumes even more.
For example, ANZ warned that “an overly prescriptive approach” to mortgage lending could drive borrowers away.
Commonwealth Bank said tighter rules could lead to "complexity, delays in processing and burdens upon the customer through the application process".
NAB said the proposed reforms “may increase operational costs for credit providers and, in turn, potentially impact the cost of credit for customers".
Westpac argued that “placing too much emphasis” on living expenses “would have the effect of denying credit to many customers”.
The big four need to look in the mirror
But the big four banks are deliberately ignoring an important point.
The reason they’ve been writing fewer loans hasn’t been due to tough regulations; it’s because their assessment processes are so inefficient.
Back when lending rules were looser, they could get away with having such cumbersome systems. Now, they’ve been caught out. If they weren’t so bureaucratic, they’d be doing a lot more business.
Speed and quality aren’t mutually exclusive
By contrast, Credit Connect Group has built a reputation for providing fast, personalised assessments.
We’ve got no problem with tight lending rules, because we live and breathe responsible lending.
We judge applications on their merits, not according to rigid, one-size-fits-all criteria, so borrowers get approved when they deserve to get approved. But despite the fact that we individually assess all loans, we move fast, because we’ve got efficient systems.
In other words, speed and quality aren’t mutually exclusive – they can go hand in hand.
That’s why borrowers who have been burned by the big four find using Credit Connect such a refreshing experience.
Credit Connect finances home loans of between $100,000 and $1 million. Real estate security is required.