How do regulatory changes in lending affect me as a borrower?
9 April 2018 MO'R Mortgage Options
If you’ve worked for any Government Department over the last few years, you would be very familiar with the phrase, “change is the only constant.”
Your Department’s probably merged with another, your area has moved to another section and perhaps despite the changes, you’re now back to exactly where you started – performing the same role as before.
Boy do we know what that’s like. Over the last few years, the lending industry has seen unprecedented changes and with the Royal Commission into the banking industry, there are further changes on the horizon.
Here’s a brief recap of the changes we’ve seen over the last few years –
Following the ASIC’s review in 2015, APRA imposed a number of restrictions on lenders – one of them being to cap the volume of investment loans a lender can have on their books at any one time.
Shortly after, APRA then insisted lenders reduce the proportion of loans on their books with Interest Only repayments. This saw lenders offer incentives to borrowers to select Principle & Interest repayments instead of Interest Only repayments. (This is not necessarily a bad thing, as it means you’re actively reducing your household debt with each repayment.)
Lending policies for off-plan purchases also changed, increasing the importance of having a ‘Plan B’ to ensure you’re protected.
We’ve also seen lenders increase restrictions with regards to the types of properties they deem as acceptable security for a loan. An increased number of Property Developments have been added to lender’s security registers. This creates an extra layer of ‘checks’ that need to be performed before your loan can be approved.
In addition, variable interest rates are now anything but standard. Rate discounts offered by a lender take into account a few things, namely the:
- purpose of the loan (i.e. investment or owner occupied);
- type of repayment you choose (Interest Only or Principle & Interest);
- size of your loan;
- type of loan product; and
- colour of your shirt.
Ok, maybe not the last one. But the point is, interest rates offered are not standard across the board and the rate available to you as an individual borrower very much depends on specific aspects of your application.
We’ve also seen lenders increase their servicing buffers. Which means that even though you might be making repayments based on interest rates below 4%p.a, lenders want to make sure you can make repayments at a much higher rate, before your loan will be approved.
Why is there a need to change things even further?
Regulators want to ensure lenders are not approving loans to borrowers who can’t afford them. Which is great, because that’s what we’re about too!
Regulators want to ensure that lenders have adequate processes in place that allow their teams to assess loan applications consistently. This is also great, because that’s what we want too!
Regulators also want to ensure that borrowers know all the specifics of the loans they are applying for so there are no hidden costs or surprises later on. We’re also happy about this, because open and honest communication with our clients is something our business has been built on. It’s why you receive a copy of our ‘Preliminary Assessment’ and ‘Credit Proposal Disclosure’ document. We want to make sure you have all the details of the proposed loan and information upfront, so you have the complete picture before deciding to go ahead with a loan application.
What changes are we likely to see over the coming months?
There’s no doubt about it. Lenders will start to request further supporting documentation.
The thing is though, we’ve been requesting additional documentation from clients for a while now – things like additional bank statements, credit card statements and internet banking summaries.
We’ve been doing this because we’re conservative by nature and like to be extremely thorough when we conduct our borrowing assessments. We would never say “yes” to you as a client, if there’s even the smallest chance you may find it difficult to meet repayments down the track. It’s irresponsible lending and we’re completely opposed to it. We take our responsibility to act in your best interests seriously. Our commitment to live out this value for the last 17 years is the very reason so many of clients continue to recommend us to others.
We’re also likely to see some time delays with lenders processing applications. Lenders are changing their internal processes so quickly and their teams are doing their best to adopt the changes as quickly as possible. But with additional processes now in place, we’ve seen many of the lenders struggle to keep up with standard turnaround times. As we approach the end of the financial year – which is traditionally a busy time of year anyway – it’s unlikely this will change.
We’re also going to see – and this has also been happening for a while – increased examination of your declared monthly living expenses. So if you’re getting ready to start looking at a purchase, it’s a good idea to have an understanding of what you’re spending on your monthly groceries or entertainment costs. After all, how can you better manage your money if you have no idea where it’s actually going?
Our take on things
The changes we’ve recently experienced – and will continue to experience – are changing the nature of our industry. We’re not operating in the same environment anymore and to be honest, that’s ok with us.
Yes, there may be a few more things we need to obtain from you as a client.
Yes, there may be a few more calculations we need to perform.
But at the end of the day, despite all the changes our team is still here to do exactly the same thing we’ve always done.
We’re here to act in your best interests.
We’re here to help you find the right loan, at the right rate, at the right time.
And we’re here to make your life easier.
Nothing’s going to change that.