Resimac leads the way on lending changes

Buying a property or know someone who is? The good news is changes to lending laws may make applying for a loan less frustrating for some.

Home loan providers and others have been told that inquiring into the individual expenses of borrowers is not the only way to assess eligibility, as part of July reforms to the Credit Contracts and Consumer Finance Act (CCCFA) lending rules.

This is a remedy to problems following earlier changes to the Act late last year.

In late 2021, the government-imposed measures designed to better protect people from irresponsible lending, which can lead people into unmanageable debt.

The new laws set minimum requirements for how lenders should assess a borrower’s capacity to repay a loan. This included obtaining a borrower’s financial information in “sufficient detail”, as mentioned in the Responsible Lending Code.

Some lenders responded by analysing individual expenses in applicants’ bank records.

Media outlets reported banks were rejecting loans for reasons such as the applicant buying too many coffees.

The government later cited concerns that some lenders were making unnecessary inquiries into borrowers’ living expenses on bank statements. This finding was among those in a June report on the impact of the changes.

Fortunately for consumers, the government has clarified in its 7 July changes to lending laws that the requirement to obtain information in sufficient detail only relates to data provided by borrowers.

The updated Code said this requirement to obtain information did not apply to bank transactions.

Lenders must of course still assess a borrower’s likely future living expenses.

This assessment of future living expenses can be done by comparing borrower estimates with statistical data about household expenses. In other words, using a ‘benchmarking’ approach.

Resimac has used this benchmarking approach to estimating a person's ability to repay a loan since the initial changes in 2021.

Head of Credit Vincent Van Der Kraaij said this provided fast decision-making in a way that met the regulations, without being too onerous for borrowers.

Mr Van Der Kraaij said he was surprised other lenders relied on detailed spending history to decide whether people would be able to repay their loan.

"We're pleased to see the industry has been encouraged to adopt an approach that ensures eligible borrowers don't miss out," he said.

This material has been prepared for information purposes only. This should not be taken as constituting professional advice. You should consider seeking independent legal, financial, taxation or other advice to determine how this information relates to your own circumstances.