What is Tim Lawless’ view of the government’s proposed relaxing of the lending laws?
I canvassed the opinion of Tim Lawless, one of Australia’s leading property market analysts and commentators, and Head of Research at CoreLogic Asia Pacific, during an interview for a recent OpenCorp webinar.
Tim is regularly sought out by government and the media for his insights and opinions on property markets, so it was interesting to get his view on the responsible lending issue.
Where are things at now?
Tim says: “Reforms to the Credit Act still need to be debated in the political environment; chances are they could be watered down. But if they do get voted through exactly as the Treasurer suggested before the Budget last year, it doesn’t necessarily mean it’s becoming easier to get credit. It just means that process becomes more streamlined.
He says: “APRA (Australian Prudential Regulation Authority) becomes more involved, non-banks versus the banking sector. Maybe more similar rules around the playbook. But I think the more important area of the lending environment to watch is going to be lending standards and any signs of macroprudential intervention – big word, but all macroprudential means is we see the regulator coming in tightening credit rules, because it becomes a little bit concerned about financial stability.”
Tim points out previous interventions, such as in late 2014, when there was a 10% “speed limit” applied to investment credit growth, and in 2017, when interest-only lending was targeted.
“We saw the market react to the lending environment virtually instantly, and it did slow the marketplace,” Tim says.
“So, I think APRA will be very closely watching things like how many loans are being written on high debt-to-income ratios.
“If you’re applying for a loan and the debt level is more than six times higher than your income, that’s where it becomes a little bit harder to secure a really good interest rate, for example.
“It’s certainly important that we do maintain lending standards and any signs of that slippage, I think we can expect that some tightening coming through and we’re already seeing some economic commentators suggesting we could see that before the end of the year,” says Tim.
What’s the bottom line?
In short, Tim’s take – that credit won’t become a giveaway, but things will get a bit easier – is good news for responsible property investors.
It would mean suitable applicants being able to qualify for the loan they need to pursue their investment strategy, without someone wading through the minutiae of their financial comings and goings, if Mr Frydenberg’s proposals go through.
There’s still an ‘if’ there; these proposed changes need to be passed by Parliament. I get that; we’ve got a robust democracy in this country (and I wouldn’t have it any other way).