What does the royal commission into banking mean to me?

mortgage-broker

#1

Hi All,

I am seeing a lot of commentary around the royal commissions final report into misconduct within the banking, superannuation and financial services. Particularly around the potential damage the recommendations of the report had with regards to small and medium sized mortgage brokers.

You can see the final report here

Interested to hear your take on the recommendations handed down by the royal commission - Were they too soft on the big four? What impact will these recommendations have, if implemented, on the average Australian?

@Julie @LisaStark @PeterMericka


#2

Hi Jacob. This is such a big topic! For those who don’t want to read such a comprehensive report, here’s a great overview https://www.smh.com.au/business/banking-and-finance/the-banking-royal-commission-final-report-at-a-glance-20190203-p50vg2.html

I’d like to focus on what the commission report means to average people buying property for new homes and smaller scale property investors. This is more about market, media and public reaction, than the report itself.

The good news for new buyers is there is a temporary impact on Australian house prices. They’re dropping because credit is tighter, people are anxious thanks to the royal commission and the media, and loan approvals have reduced as lenders come under scrutiny. Many investors are holding off buying and selling because of potential changes to tax laws. Property owners can’t get loans to move or are holding off for the market to stabilise. And this is just some of the stuff happening in property today! It won’t last. Ultimately, pricing is driven by supply and demand. Our population keeps growing and we need housing. Less houses will be available, which means less supply. Pricing goes back up. Simple.

I’d forecast late 2019, early 2020 as great times to buy into property, because the full impact of all these things will be felt then. I’d also suggest there will be increases to the First Home Buyers Grant around this time or by mid 2020. The market will likely start to rise again within 2 years.

As a result of the report and public pressure, there will be new lenders enter the market to create great competition, which will mean better offers to customers. Check out Volt Bank, the first among a group of “neobanks” to be given an “unrestricted” deposit-taking institution licence by the Australian Prudential Regulation Authority (APRA). https://www.voltbank.com.au/

At a more personal process level:

  • There is obviously a current tightening of credit, so everyone needs to organise funding before they go property shopping!
  • Given the new financial environment, be prepared to fully itemise your expenses during a loan application process and show evidence of each cost.
  • You will need employment continuity - and at least 3 months’s of payslips in a current job when you apply for a loan. A written letter of offer is not enough.
  • Make sure you can show a good history of savings, as that will evidence your ability to make mortgage payments.
  • There will be even more consumer protection moving forward, that will look after your interests and ensure there are no ‘sneaky’ fees.

I’m hoping that the recommendations for Brokers are rejected in part. These people play a big role in keeping bank’s and other credit providers honest. Yes, they have trailer commissions, but they also continue to manage the customer and put in massive amounts of hours ‘brokering’ the best deals, so the borrower gets the best possible rates. That is an important part of keeping the industry competitive and improving services. I never hear personally from my bank, but I often hear personally from my broker.