Article by Nerida Conisbee
When the banking Royal Commission was announced in December 2017, many commentators believed a large proportion of the final report would be on home loan lending.
In particular, the way the banks lend to home buyers as well as the amount. At its most extreme, there was speculation that someone on an $80,000 income would only be allowed to borrow $200,000.
The banking Royal Commission’s final report had less of a focus on home loan lending than first expected.
Anyone who has applied for a home loan since this time would have found how much harder it now is. As part of responsible lending, more information now has to be provided as to expenses, income and existing debts. While frustrating for some, it is a positive in ensuring that people don’t over borrow and get themselves into financial stress.
On realestate.com.au we can see clearly that access to finance, as well as the cost of finance, is closely linked to search activity. For markets like Melbourne and Sydney, it led to a change in sentiment towards property as people found it harder to get loans.
For Perth, a market that was starting to recover in 2017, it derailed the recovery and led to further price falls in 2018. Although property fundamentals are overall positive in these market (i.e. population and jobs growth are looking pretty solid), less money available affected the market.
Tighter lending during the Royal Commission affected housing markets in Melbourne, Sydney and Perth.
While the impact of the Royal Commission on the market will be minimal from this point forward, the way that you get a loan may change. At the moment, over half of all people applying for a home loan do so through a mortgage broker. One of the biggest announcements in the Royal Commission was that trailing commissions should be abolished, and instead be replaced by an upfront fee paid by the person applying for the loan.
At this stage, the Morrison Government has rejected the upfront fee model and instead recommended that the banks pay this fee. So for now, you can still use a mortgage broker without paying an upfront fee, but this may change.
With the Royal Commission out the way, where to now for residential property? It is possible that access to finance will continue to ease up.
In 2018, APRA removed the cap on the number of interest only loans that banks could provide; a restriction they put in place in 2017. They also removed the speed limit imposed on how much banks could increase their lending to investors. This move was implemented in 2014 and restricted investor lending growth to 10% per annum.
The risks around investors borrowing too much seem to have passed.
The next big hurdle for property will be the Federal Election, expected to be held in May 2019. With greater certainty now around access to finance, the outcome of this will give us an idea as to how tax incentives for investors will be handled from that point forward.
Best case, we are looking at far more stable conditions for the second half of the year.