The days of homebuyers handing over details of their UberEats and coffee spending habits to get approval for a loan from banks could soon be over.
The federal government plans to overhaul consumer credit protection laws introduced following the 2009 Global Financial Crisis to streamline the lending process and cut out red tape.
Homebuyers are set to benefit the most from the proposed reforms, which Federal Treasurer Josh Frydenberg will unveil on Friday.
Under current laws governing mortgages, personal loans and credit cards, the onus is on banks and lenders to verify information contained in a borrower’s application.
Financial institutions go as far as examining borrowers’ personal expenses and spending habits.
The federal government hopes to open the home ownership door to more Australians with an overhaul of consumer credit protection laws (stock image)
The aim of the reforms is speed up the loan application process and shift responsibility onto borrowers.
‘As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses,’ Mr Frydenberg said.
‘With billions of dollars extended to borrowers each month, credit underpins the Australian dream of home ownership while allowing business to invest, grow and create jobs.
‘Maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan.’
Homebuyers are set to benefit the most from the proposed reforms to be announced federal treasurer Josh Frydenberg on Friday. Pictured are potential homebuyers attending an auction
Reserve Bank Governor Phil Lowe recently hinted consumer protection laws should be reexamined.
‘From what started a decade ago as a principles-based framework to regulate the provision and consumer credit has now evolved into an overly descriptive, complex, costly, one-size-fits-all regime … over time, lenders have become increasingly risk averse and overly conservative in their approach,’ Mr Frydenberg wrote for The Australian on Friday.
‘It is now not uncommon for a person applying for a mortgage to be asked to explain individual discretionary spending and provide verification of a customer’s Netflix and Spotify subscriptions, UberEats or MenuLog usage or other detailed information. All in order for the lender to be confident that it cannot be held liable in the event the borrower cannot repay the loan.’
Master Builders Australia chief executive Denita Wawn described the proposed reforms as a structural game changer.
‘We believe the changes mean the banks will use a market-based risk approach,’ she said.
‘That should free up access to credit and we hope it will also streamline the process, which at the moment is highly cumbersome for customers.’
It will take six months for the new laws to come into effect if passed by federal parliament.
Homebuyers (pictured at an auction) would no longer have to justify Netflix and Spotify subscriptions, UberEats and MenuLog habits when applying for a home loan
Financial experts from comparison website finder.com.au have previously warned how spending and UberEats and takeaways could affect someone’s ability to get approval for a credit card or a mortgage.
‘Your transaction history and spending habits will be taken into account,’ Finder’s personal finance expert Kate Browne told Daily Mail Australia earlier this year.
‘If you’re someone who regularly splashes out on non-essentials rather than saving, lenders may perceive you as riskier to lend to.’
Insights manager Graham Cooke added: ‘It’s not so much that Uber Eats specifically is going to be a red flag but if you combine a lot of outgoing spending with stuff like gambling, all of them collectively, potentially, make banks slightly more cautious.
‘If you do have a habit of spending excessively, that could potentially affect your chances of getting a home loan.’
The Great Australian dream of home ownership could soon be accessible to more potential homebuyers (stock image)