Responsible lending laws could inhibit homebuyer scheme

George Lekakis Mortgages

Credit experts say responsible lending laws could prevent banks and other lenders from supporting the coalition’s first homebuyer deposit policy, unveiled on Sunday by Prime Minister Scott Morrison.

The government is promising aspiring homeowners on average to low incomes that it will cover mortgage insurance costs if they are only able to stump up a 5 per cent deposit on their first home.

Morrison said the policy would help fast-track young people into the residential property market by reducing the time it took for them to save for a deposit.

He said government investment in their mortgages would also save them from having to pay bills for up to $10,000 on lender’s mortgage insurance.

However, Morrison did not explain how the support scheme would fit with the now rigidly enforced responsible lending rules that prevent lenders from making loans to borrowers who cannot demonstrate a capacity to repay.

A policy aiming to fast-track prospective home buyers with small deposits could undermine the traditional method used by banks to assess a borrower’s ability to service debt.

One of the key benchmarks banks use to make such assessments is to determine whether a loan applicant has demonstrated a consistent savings record.

Government attempts to accelerate housing loan applicants into the market could potentially retard or complicate the process through which banks make responsible lending decisions.

If the new support scheme leads to fewer borrowers being able to demonstrate consistent savings patterns then lenders might be forced to reject more applications on grounds that a capacity to repay cannot be established.

Banking consultancy firm McLean Roche is concerned that the coalition policy – which the Labor Opposition says it will also implement – could create a regulatory tension between responsible lending laws and the government’s push to get young homebuyers into the market.

“Banks are looking for borrowers that can service a debt and who can show they have saved for a deposit,” said McLean Roche principal, Grant Halverson.

“If borrowers can’t provide a 15 per cent deposit I would question whether they can service a loan.”