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The financial services Royal Commission established at the end of last year is starting to have an impact on property prices.
And it is clearly affecting our property markets.
Let’s do a quick Q& A to understand what’s going on….
What is the financial services Royal Commission?
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, also known as the Banking Royal Commission and the Hayne Royal Commission, is a royal commission established in 2017 by the Australian government to inquire into and report on misconduct (including irresponsible lending) in the banking, superannuation and financial services industry.
What have they found so far?
The inquiry is still ongoing – It’s first public hearings began on 13 March, and they will run at irregular intervals through 2018.
But so far has revealed malpractice that in some cases has ruined people’s lives.
We’ve heard evidence of appalling behaviour by Australia’s major banks and financial planners including alleged bribery, forged documents, repeated failure to verify customers’ living expenses before lending them money, and misselling insurance to people who can’t afford it.
We also were told that 90% of financial advisers who provide advice to self-managed super funds have failed to comply with the best interests of their clients.
Which banks are involved ?
The big four banks – Commonwealth Bank, Westpac, ANZ, National Australia Bank – are being looked at.
Other companies including AMP, BT Financial, Aussie Home Loans and St George, and a number of small car finance companies have also been investigated and more financial institutions will be asked to appear as the year rolls on.
How is this affecting loan approvals?
The banks have been receiving a lot of bad media and are currently allergic to more risk.
At the same time banking regulator APRA has asked lenders to tighten their lending practices.
Home buyers and property investors in particular are now finding that when they apply for a loan the banks are looking much more closely at their capacity to pay saying that this is “responsible lending.”
This means many potential borrowers are unable to get a new loan, others are waiting much longer to get their loans approved and many who can get loans are only able to borrow 60% or so of what they may have been able to borrow a few years ago.
What are banks focusing on for loan approvals?
Apart from income and the ability to service loans, lenders are looking much more carefully at living expenses
Before the Royal Commission, most Australian banks relied on the Household Expenditure Measure to estimate annual living expenses, but the Commission’s findings suggest that banks may have over-relied on this measure in deciding whether to approve loans.
It’s now up to each lender to decide how they will change their policies to respond to the Commission’s findings.
What does this mean for property prices?
As I’ve often said, the game of property is really a game of finance with some houses thrown in the middle.
So the fact that there are fewer buyers in the market place at present and many with a lower budget than they’d means less demand and this has translated to softer property prices.
As is normally the case at this stage of the cycle more expensive properties, which are more subject to discretionary spending, are the weakest segment of the market.
And not surprisingly this is more evident in Sydney and Melbourne, where the most expensive quarter of the market has seen dwelling values fall by 7.4% and 2.5% respectively over the last 12 moths.
Should I be worried?
No – we’re experiencing a soft landing and unless you’re immediately in the market to buy or sell your property, this temporary slowing of the property cycle shouldn’t worry you.
On the other hand if you’re in the market to buy your next home or investment, this is a great time to take advantage of the market if you have a long term perspective.
WHAT CAN YOU DO TO STAY AHEAD?
As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.
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