Why using a broker could mean a safer loan
What a difference a global pandemic makes!
It was only a couple of years ago when the federal government was tightening the screws on borrowers. In fact, for much of the past decade, regulatory changes have made it harder for banks and other lenders to write loans. Detailed and lengthy credit approval processes were put in place, aimed to stop people taking too much advantage of record low interest rates.
The reasons were sound: rates would eventually rise and the government feared that people wouldn’t be able to service their loans. So lenders had to operate under a set of rules that made loans harder to get.
2020 Federal Budget changes
Along comes COVID-19 and the entire landscape has changed. For various virus-related reasons both people and businesses are on the lookout for credit, and the government has announced that it will propose a simplification of its ‘credit framework’ – it’s rules around borrowing and lending.
Describing the existing system as offering outdated ‘one-size-fits-all’ regulations for borrowers, this year’s budget plan potentially removes much of the responsible lending guidelines that added time to a loan approval, or to the refinancing process.
If the bill passes Parliament, banks and other lenders would be relieved of the burden of having to do a deep dive into a borrower’s finances. Presently they are required to check your income, look for other debts and assess your credit history. While much of this would still remain, they would potentially no longer need to investigate your spending habits.
While it initially sounds great to remove much of this regulatory ‘red tape’ that slowed down the loan approval process and limited the amount banks could lend, there is a downside.
That red tape was introduced in the first place to protect borrowers. It added a kind of safety barrier to borrowers who were trying to borrow amounts beyond their ability to repay.
Broker obligations
At Mortgage Broker Melbourne, we have always offered guidance based on our clients’ personal situation. And in more recent years, that has been formalised: we have a regulatory obligation to find and arrange loans that are in our clients’ best interests (it’s called a Best Interest Duty or BID).
We take care with our clients, making sure they understand their current finances, debts, spending habits and more. We work to ensure that our clients only take out loans that they can actually afford to pay. This takes the hassle out of shopping around for a loan, and reduces the chances of mortgage stress down the track.
It is true that sometimes we have to suggest to clients that a certain house or apartment is beyond their price range. This is disappointing to some but is always offered based on our understanding of every client’s individual situation.
Avoid mortgage stress
With banks and other lenders freed up to offer loans with fewer checks and balances, mortgage brokers are now more essential than ever.
We don’t want to see anyone get into a situation where they can’t make the repayments on their property, or – worse still – see their property repossessed by their bank.
Contact us at Mortgage Broker Melbourne; we’ll work with you to find a realistic spending limit based on your financial situation. Even with low interest rates, now is not the time to leave a property purchase to groups with fewer and fewer regulations.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!