New rules won’t ‘kickstart’ housing market

A homeowner who is debt free with thousands in monthly discretionary income should not have to jump through hoops to get a new mortgage, but under current lending rules they do.

This is the situation for one of the clients of Squirrel Mortgages founder John Bolton. The man owns two properties, and wants to buy another house.

He has discharged his mortgages, is debt free and could buy the new house outright, but decided he wanted a new mortgage.

Bolton said his client was applying for the lending with a bank he has been with for more than 10 years, has never missed a payment, and has plenty of disposable income, so he thought his application would be easy.

“Instead he has been shocked, and frustrated by what the application has involved. Affordability is not remotely an issue, and he was good on declaring his expenses.

“But the bank has come back with at least 20 questions requiring detailed information around costs such as his wife’s car parking, and a payment to his daughter.”

The man could not believe it was easier to secure his previous $1.6 million mortgage than it was for him to secure $500,000 for a mortgage now, Bolton said.

Mortgage lending became much tougher to get when the previous government updated the Credit Contracts and Consumer Finance Act (CCCFA) in 2021.

The changes were intended to crack down on irresponsible lending by loan sharks, but reports of people being turned down for home loans based on things like spending too much on a dog, or having been on maternity leave soon emerged.

They came at a time when the Reserve Bank had tightened loan-to-value restrictions, and mortgage advisers described the result as a “credit crunch”, which contributed to the slowing of the housing market.

Now, Commerce and Consumer Affairs Minister Andrew Bayly and Housing Minister Chris Bishop have announced the Government is revoking the “overly prescriptive” affordability provisions contained in the CCCFA.

Bishop said the existing rules meant thousands of families that would have previously qualified for a home loan were locked out of the market.

The changes would make the home loan application process simpler for people who had diligently saved to buy a house, he said.

Bolton, who ran a petition to rewrite the lending rules in late 2021, said the changes would not make much difference to people’s ability to borrow “but they will make the borrowing experience much better”.

AdviceHQ founder David Green said the changes should be favourable for the market as they would ensure a better flow of credit, and reduce the time involved with applications.

At the moment, applying for a $20,000 mortgage top-up to redo a roof was treated the same as applying for a new $2m mortgage, he said. “The changes should enable them to work more quickly, particularly when it comes to smaller loans.”

Economist Tony Alexander said it would take a while before the changes had an impact on the market. “It will take quite a bit to overcome the negative buzz out there, and entice buyers back to the market.”