How Lending Criteria Relaxations Will Impact the Real Estate Market

Last year, the Royal Commision made a point that banks were not being “responsible lenders” for most of 2019, and this has led to overly restrictive responsible lending rules.

Now, the Australian government has done something to make a backflip on their previous trance. Last Friday, Federal Treasurer Josh Frydenberg announced sweeping changes to relax the tight lending conditions they have put in last year. The goal is to improve access to finance, making borrowing money easier and more efficient for everyday Australians. This may not only increase the number of first-home buyers, but it may also boost demand for credit and stimulate the economy (again) amid the COVID-19 outbreak we are all facing today. With these changes, the government is simply trying to encourage people and businesses to spend and borrow money instead of spending less in restaurants and stores, and just staying at home, saving every penny for a rainy day, which could cause a recession and some major drag on housing and economic recovery. 

Federal Treasurer Josh Frydenberg also said that while credit has become cheaper due to the low interest rates, a lot of future borrowers are still prevented from accessing finance because of the strict regulations, which is why relaxing the tight regulatory regime has become a great solution to the country’s credit growth. Denita Wawn, CEO of Master Builders Australia, even sees that “giving banks flexibility to deal with applications on a case by case basis could result in lenders providing mortgage finance to more people.”

Furthermore, Wolfe said the announcement will complement the existing support schemes to spur buyer activity, including 

the HomeBuilder and the First Home Loan Deposit Schemes.

“Banks will still have to maintain appropriate application procedures and there is a mutual responsibility on the customer to 

supply accurate and truthful information when applying for a loan,” he said.

Adrian Kelly, president of the Real Estate Institute of Australia (REIA), said the announcement is also a big win for home sellers as demand for houses improves.

“This will allow sellers to list their properties knowing the buyers will be out there. By improving demand, the government is giving prices less chance to fall, meaning the doomsday forecasts can be archived,” he said.

To sum it up, the changes set to take place from March 1st, 2021 include the assurance that consumers and small businesses can get timely access to credit; a more efficient flow of credit to consumers and small businesses while maintaining strong consumer protections, through changes to Australian credit laws; and improvement on the flow of credit to support business investment and create jobs.

This means that, if you are an investor and/or a homeowner, there will be a window of opportunity coming your way, as a whole lot of new buyers will be entering the real estate market. Think about it, people who can’t borrow will suddenly be able to, and people who are already active will have increased lending capacity.

While we can’t look at these changes in isolation. It is no doubt a large positive influence on buying demand which ultimately drives real estate prices. Even if there are some negative headwinds next year via an increasing unemployment rate with Jobkeeper coming to an end, at the very least this change will soften any potential blow. However if we are fortunate and the economy is bouncing back by the end of Jobkeeper and there isn’t an unemployment increase then this lending change will provide a significant boost to the real estate and building sectors.

Locally, we have been fortunate to have had very stable pricing (if not an increase) throughout the pandemic, so this change ensures that next year will remain relatively stable again.

If you have any real estate needs or would like specific advice in relation to your property please get in contact with our team as we would love to assist you.