Sweeping changes to lending rules could soon mean your borrowing power will increase by up to 20%.
Plans for game changing reform to lending criteria has just been announced that has sent a wave of hope across the nation, signalling the end of one of the toughest home loan periods seen by investors. Current restrictions on finance, born from the Banking Royal Commission has left tens of thousands of Investors confused and disempowered, many choosing to sit on the sidelines until finance conditions improve. Others desperate to buy, have found themselves restricted to a tight borrowing capacity or forced out of the market entirely.
Easing of Lending Restrictions
With the handing down of the Federal Budget on Tuesday night there is much to digest and indeed the path to economic recovery is a long one; however, the government have been widely praised for their handling of the pandemic, particularly concerning stimulus packages aimed at keeping the economy moving, and the JobKeeper payments enabling employers to retain staff.
One of the real game-changers, in terms of stimulus, emerged last week; the market got really excited, by the announcement by Federal Treasurer Josh Frydenberg of sweeping changes to remove some of the overly restrictive lending rules. These changes will enable lenders to rely on borrower-provided information unless there are reasonable grounds to suspect it is unreliable; with the goal of making borrowing easier and in an effort to boost demand for credit. These changes are set to take place from March 1st 2021 (subject to parliamentary approval).
The focus has shifted from tight fiscal restraint to stimulus.
Borrowers will be made more accountable for providing accurate information to inform lending decisions, replacing the “lender beware” rules with a “borrower responsibility” principle.
Mr Frydenberg says it is essential more credit is made available to boost the economy, which has been kicked into a recession by the coronavirus pandemic.
Housing Industry Association managing director Graham Wolfe says access to finance and banks’ lending practices are the biggest hurdles to homeownership.
“This plan does not solve all the problems around access to finance and credit. However, HIA believes it is a move in the right direction,” he said.
“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.”
Make no mistake this is going to make a critical difference to the health and vitality of the property market in 2021 and beyond…Whilst it may be seen by some as a backflip from recommendations that emerged from the banking Royal Commission – in these unprecedented times, the focus has clearly shifted from tight fiscal restraint to stimulus.
In summary, the changes involve:
- Simplifying the credit framework to allow consumers and businesses to obtain timely access to credit.
- Improving the flow of credit to support business investment and create jobs.
- Enabling a more efficient flow of credit to consumers and business via changes to the Australian credit laws. In essence, some of the onus regarding lending obligations will be loosened in terms of the banks, placing responsibility back in the hands of lenders, still within a framework of strong consumer protections.
What does it mean for property investors?
Depending on your individual financial circumstances, it could mean the following:
- An increase in the amount of money you can borrow – some estimates suggesting by up to 20%
- A faster turnaround on approval times
- Price growth on existing portfolio driven by a surge in demand as more buyers enter the market due to easier access to credit and increased borrowing capacity
The optimal buying window may be closing
It is worth noting that it may be an opportune time to buy right now, prior to this change coming into effect, whilst there is still uncertainty in the marketplace – your negotiating power is heightened in the face of less competition.
Founder of Invest Approved and one of Australia’s leading property educators, Phil Anderson says that “The government is signalling that property investment is a corner-stone to their COVID recovery plan, freeing up capital through relaxation of lending rules scheduled for March 2021 well mean more buyers in the market – this well drive demand in 2021 and beyond”
“Investors still need to be wary, and now more than ever choosing the right property will be critical”. he said.
The question you need to be asking yourself right now is: how will you position yourself to capitalise on the rebound, as lending restrictions ease and sentiment improves?
At Invest Approved, we believe NOW is the time to take action to seize opportunities that will position you in a favourable space when the market is in full recovery. Our team is continually screening markets for the best options. By choosing an Invest Approved Certified Property, all the hard work has been done. Together with your Invest Approved Certified Agent, we can help you to make the right chooses when commencing or adding to your property portfolio with a focus around positive cash flow and strong capital growth.
If you would like to learn more about how you can invest in a post-COVID-19 economy, click below to download your free copy of Phil Anderson’s latest book Ready, Set, Rebound – 5 Step guide to confidently building wealth through property post COVID-19.