The banking royal commission has been a talking point throughout the country for the past week since its release. With the biggest shakeup to the financial sector to date, this will have an impact on the financial industry, jobs and property. Below is a breakdown as to how this will affect what we know the best – property.
Since the report has been published last week, there have been 76 recommendations made by Commission Hayne as to changes within the industry.
Originally, with the start of the Royal Commission, there was a tightening of lending which saw an impact on the purchase of property throughout Australia.
The changes will majorly affect; mortgage broking, loan approvals and the sales and rental markets. We will break down each major change.
- It was recommended that they move to a fee-based model as opposed to the current commission-based model.
- This means that a visit to a mortgage broker prior to purchase could set you back $3000+. This will take effect, by the latest, in July 2020.
- This could possibly save you money. This is dependant on the loans which were being pushed your way due to larger commissions for the broker which is very limited in the industry.
Loan Approval processes:
- The predictions from leading economists remain that it will not be harder to obtain a loan from a financial institution. The process will remain in line with the tighter loan regulations which have been seen over the past 6-12 months.
- What is important to note as well for the current financial standpoint is that Australia’s household debt is approximately 100% of GDP which is one of the highest in the world.
- The APRA had recommended prior Royal Commission is that banks need to reflect the actual costs invoked, prior to giving loan approval. This was completed by many banks by using the Household Expenditure Measure (HEM). This leaves your evidence based expenses to be used during the loan application process. The HEM should be phased out throughout institutions and focus on the actual expenditures of an individual/family.
- This has and will lead further to more consumers getting denied for loans (both home and personal loans). This means that the effect, which is already visible over the past 6-12 months, is a reduction in sale prices as there are fewer consumers being able to obtain loan approval.
- For rentals, this has two possible reactions. This depends on the area in which you own your investment property and the median household incomes within that area.
- Generally, a reduction in sales prices will lead to reductions in rental amounts as more people break into the market.
- However, with loans harder to obtain – this can then lead more people back into the rental market and therefore driving rents up.
If you have any question in relation to your property and where it is currently sitting – please contact us.