Property a winner from lending rules but consumer groups wary

An easing could feed into a recovery for the residential property market, but there are fears about rising debt.

Consumer advocates have responded more cautiously to the changes.

The property sector is in for a boost from federal Treasurer Josh Frydenberg’s easing of responsible lending laws introduced the wake of the global financial crisis with major developers best positioned.

The treasurer on Friday unveiled a move to remove barriers to the flow of credit to households and small businesses and lift the accessibility of credit for borrowers, with less stringent assessment of expenditure information.

Banks would be policed under less prescriptive prudential lending standards currently overseen by APRA, while eliminating the stricter ASIC lending rules.

Penalties for lenders would also be removed if borrowers mislead on loan applications, with income and expense information provided by borrowers a key determinant in credit applications.

Macquarie analyst Stuart McLean said the changes were a positive for the residential markets at time when there is an increase in owner occupier credit availability but a decrease in investor credit availability.

“While it is uncertain how the above announced changes from the Treasurer will impact the flow of credit, we believe it would be a marginal positive … particularly around timeliness of approvals,” he said.

Macquarie said the residential environment improving and reiterated their view of a lower than expected fall indwelling price declines peak-to-trough.

The house view is now for an 8-10 per cent dwelling price increase by the end of 2022. “This view is supported by the significant improvement in mortgage repayment affordability amid much lower interest rates,” Mr McLean said. Improving borrowing capacity for households is expected to be supported by the relaxation of responsible lending rules.

The detached housing sector should be most resilient, in part supported by government stimulus, with upside risk to construction starts on the back of stimulus measures.

“The next catalyst for the developers would be an extension of the federal government HomeBuilder program or an announcement of a housing stimulus package from the Victorian government,” Mr McLean said.

In the residential area the analyst prefers Stockland over Mirvac, saying the Mark Steinert-led company did not have near term productivity constraints and can continue to benefit from further stimulus.

But consumer advocates have responded more cautiously to the changes. CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre, in a joint statement said it would remove credit protections for borrowers.

They warned the proposed reforms will remove bank responsibility to customers, opening up new opportunities for banks to aggressively sell debt.

“The problem people are having right now is too much debt and not enough income. The government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a shortsighted fix for a flailing economy,” Financial Rights Legal Centre chief executive Karen Cox said.

“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term,” she added.

Financial Counselling Australia chief executive Fiona Guthrie said as was learnt during the GFC, weaker lending standards mean people will be loaded up with as much debt as possible. “There is significant profit to be made in pushing borrowers to the edge. Removing responsible lending obligations will free banks up to aggressively push credit onto their customers,” Ms Guthrie said.