A business and debt expert has weighed in on whether or not repealing responsible lending obligations would actually deliver tangible change to Australia's lending lanscape, let alone the economy at large.
Two weeks ago, the government announced its intention to do away with the responsible lending obligations lenders have been held to in recent years, describing the current system as “overly prescriptive, complex and unnecessarily onerous”; with the deregulation, Treasury's hope is credit becomes more easily attainable, with the improved cash flow contributing to the economic recovery of the country.
Dominique Grubisa, CEO and founder of debt and wealth management advisory service and education company DG Institute, has acknowledged the proposed credit reform is certainly a “good thing” on the surface; however, she can’t help but doubt the change will “make little difference to individuals and businesses, and thus the health of the economy”.
“My experience is that individuals and businesses have not been trying, and are not looking, to borrow right now. Instead, they have been taking advantage of low-interest rates to pay down debts faster. Those who have been successfully doing this have been saving,” she explained.
Drawing from her experience of having helped more than 40,000 Australians manage their debt, protect their assets and grow their wealth, Grubisa has predicted the reforms “will see very little take up” by consumers.
Further, similarly to Connective executive director Mark Haron, Grubisa expects the reforms to have “little impact” on the approach lenders take to making credit decisions.
“In the last six months, banks deferred home loans worth over $190bn, or one in 10 borrowers, with little or no vetting,” she said.
“The deferrals will now stop. Even though banks have the discretion to continue for an additional four months, I believe they won’t, and mortgagors struggling with repayments will be required to sell their property. We may have a tsunami of loans defaulting."
According to Grubisa, lenders are already braced for delinquent debt "to soon hit the fan”.
“Lenders will continue to be cautious, due to existing impaired loans. Banks are currently valuing properties low, checking serviceability, and factoring in buffers such as job losses,” she added.
Considering the current turbulence in the broader lending landscape, the proposed responsible lending reform seems unlikely to make a material impact, Grubisa concluded.
