A decade of reactive regulatory restrictions in the residential mortgage lending space has hindered first home buyers (FHBs) from obtaining a mortgage to buy their first home, according to the Housing Industry Association (HIA).
HIA chief economist Tim Reardon noted that a range of restrictions imposed by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) since the GFC has resulted in the number of home loans issued with a 10 per cent deposit decline from 21 per cent to just 7 per cent of all loans.
Mr Reardon said HIA analysis has found a direct correlation between each new “reform” and a reduction in lending for the purposes of buying a new home.
“A decade of reforms in residential mortgage lending [has] been successful in creating an unquestionably strong financial system,” Mr Reardon said.
“The problem is in the pursuit of this unquestionably strong financial system, the regulatory squeeze has forced the banking sector to eliminate much of the flexibility in the mortgage market that made home ownership accessible for households of variable credit quality.”
Mr Reardon’s comments echoed those made by Reserve Bank of Australia (RBA) governor Philip Lowe, who last week told the House of Representatives standing committee on economics that banks should not bear total responsibility for a borrower’s failure to repay their loan.
Governor Lowe backed principles enshrined in the National Consumer Credit Protections (NCCP) Act, particularly the “not unsuitable test”, which he described as “imminently reasonable”.
However, Mr Lowe criticised subsequent interpretations of the legislation.
“What has happened is that those principles have turned into hundreds of pages of guidance,” Mr Lowe said.
“Once the compliance people, the lawyers, the regulators, the media get involved, these high-level principles put in law turn into a lot of guidance because people don’t want to fend these regulatory requirements.
“The principles in the legislation, I think, are sound. But the way we’ve translated those principles into reality, I think, needs looking at again.”
He also said that “the pendulum has swung a bit too far in blaming the bank if a loan goes bad because the bank didn’t understand the customer”.
“[The mindset of some] is that if the bank had done proper due diligence, the bank would never had made the loan,” he said.
Mr Reardon concluded that while having an unquestionably strong financial system remains vital to the future of the building industry, it should not hinder customers from owning a home.
“Home ownership must remain an attainable goal for all Australian households,” he said.
[Related: ASIC to review responsible lending guidance]
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.