As the housing market heats up, critics say rolling back responsible lending laws could fuel the boom.<\/span><\/p>\nThe government says the overhaul, announced last year amid fears of credit drying up, will make it easier for consumers to borrow money while still protecting vulnerable customers. Banks say it will lead to simpler loan applications without allowing people to necessarily borrow more.<\/p>\n
But with house prices and new mortgage lending taking off in recent months, consumer groups and economist critics say making it easier for people to get credit could fan the flames of the housing boom.<\/p>\n
Consumer groups that have long opposed the change on Monday wrote to Reserve Bank governor Philip Lowe, who is also chair of the Council of Financial Regulators, urging the council to reconsider its public comments on the rollback in light of \u201csignificant changes in the risk environment\u201d. The council said in October the changes \u201cwould support the supply of credit,\u201d and banks would still be required to lend prudently.<\/p>\n
Choice chief executive Alan Kirkland argued customers were at greater risk of irresponsible lending in a housing boom because rising prices put pressure on people to move quickly.<\/p>\n
\u201cWhen you\u2019ve got a hot market that buyers are desperate to get into, that places borrowers, particularly first home buyers, at risk of predatory lending,\u201d Mr Kirkland said.<\/p>\n
He said the advocacy groups, which also included the Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre, believed rolling back responsible lending laws would further push up prices by releasing more credit into the system. \u201cIt\u2019s simple economics,\u201d Mr Kirkland said.<\/p>\n
In response to recent house price gains, the Council of Financial Regulators last week said it was closely watching housing lending standards, and experts believe it could impose credit restrictions if the boom continues.<\/p>\n
Treasurer Josh Frydenberg has previously pointed to Dr Lowe\u2019s concerns about banks becoming overly risk-averse in their lending when arguing the case for the rollback.<\/p>\n
Mr Frydenberg said the proposed changes would simplify the credit framework and reduce \u201cred tape,\u201d while protecting consumers who needed it most.<\/p>\n
\u201cThe government\u2019s reforms will remove the \u2018one-size-fits-all\u2019 approach, enabling the more efficient flow of credit to consumers and small businesses, while also strengthening protections for higher risk products and vulnerable consumers using small amount credit contracts and consumer leases,\u201d he said.<\/p>\n
\u201cThe legislation, which was introduced to parliament on 8 December 2020, has since been referred to the Senate Economics Legislation Committee which is due to report back this month.\u201d<\/p>\n
Banks have backed the winding back of the rules and generally played down the risks of housing overheating, but prominent independent economist Saul Eslake was sceptical about the need for the changes. He suggested any easing in credit would feed into even higher house prices.<\/p>\n
\u201cIt\u2019s not at all obvious to me that there\u2019s a need for regulators to do anything to make credit more available,\u201d Mr Eslake said. \u201cWe\u2019ve got 50 years of evidence that anything that allows Australians to pay more for housing results in more expensive housing.\u201d<\/p>\n
IFM Investors chief economist Alex Joiner said it did not seem an appropriate time to be removing responsible lending rules, saying first home buyers tended to be those most likely to take out higher-risk loans with relatively small deposits. \u201cIt\u2019s really a situation where you don\u2019t need further fuel on this fire,\u201d Dr Joiner said.<\/p>\n
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