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A soaring property market combined with a federal government looking to wind back safe lending laws is set to spell a “recipe for disaster”, according to industry experts.
A consortium of consumer groups, including Choice and the Consumer Action Law Centre, has slammed the changing legislation with the housing market already overheating.
CoreLogic’s recent stats showed that, nationally, house prices grew by 2.1 per cent in the month of February, while Sydney over the last week has set a new record, eclipsing market highs set in 2017.
While Reserve Bank governor Philip Lowe this week said the central bank would be keeping an eye on lending practices by the banks to ensure higher standards, consumer groups have written to financial regulations, including the RBA, detailing their opposition to changing the laws.
In an open letter, Choice CEO Alan Kirkland said the housing market is already overheating and removing safe lending laws will push home ownership out of reach for many more Australians.
“We already see high levels of mortgage stress in states like Queensland, South Australia and Tasmania,” Mr Kirkland said.
“Giving more power to the banks in these circumstances will be bad for people who are already struggling to repay their mortgage and bad for people trying to get into the housing market.”
Meanwhile, CEO of Consumer Action Law Centre Gerard Brody believes changing safe lending will abolish a borrower’s right to legally challenge a lending decision, and will remove the role of ASIC in overseeing most bank lending.
“One bad loan won’t break the bank, but it can definitely break the borrower. That’s why we need to keep our safe lending laws – without them, the regulator focus will be on the stability of banks, not the protection of borrowers,” Mr Brody explained.
The consumer advocates highlighted that the royal commission reinforced the need for stronger rules and regulations only two years ago.
They said the bill will take consumer protection backwards by a decade, let the banks off the hook again, and expose ordinary Australians to more crippling debt.
“This plan to roll back responsible lending was concocted as a knee-jerk response to the pandemic-related recession. Now we are facing record lending levels and runaway property prices. It’s time to drop this crazy plan and avert a potential debt disaster,” Karen Cox, CEO of Financial Rights Legal Centre, said.
“The provisions in the government’s bill, which claims to improve protection for vulnerable people against predatory lenders, have been watered down to be worse than the law as it stands. This part of the bill is not going to work, and as government subsidies end, the sharks are already starting to circle.”
Debt refers to the amount of money borrowed from a creditor with the intention to pay back at a specified date.