Whether you’re looking to buy a home, invest in real estate or sell an existing property, the banking Royal Commission findings may have an impact.
We explore the changes and look at what you need to know before making a decision.
The findings: what are they?
The Banking Royal Commission has been a watershed in Australian history, with many potential borrowers and investors alike concerned about the recommendations in Haynes’ final report – and how they might impact the stability of the property market in Sydney and beyond.
This report was handed down in early February 2019 with some 76 recommendations, some of which may impact the property market. Here are some key points.
No further tightening of lending criteria
It’s no secret that getting a loan in the past few years has been tough. The Royal Commission unveiled many instances of irresponsible lending and misconduct by banks, which led to a clampdown on the big four’s banking practices. If you’ve tried to get a loan in recent months, you’ve probably had everything from your mobile bill to your monthly Menulog expenditure put under the microscope – with no guarantee of getting that all-important pre-approval.
The good news is, the Haynes Commission didn’t recommend further credit tightening on lending – which would have almost certainly worsened the real estate slump. Whether the current credit squeeze is ‘set to ease’ as senior Labor source reportedly told the Australian Financial Review is anyone’s guess – we think only time will tell.
Potential changes for mortgage brokers
Over half of all home loans are arranged through a mortgage broker in Australia, who typically help borrowers find a suitable loan from a selection of potential lenders. Borrowers don’t put their hand in their pockets for this advice – currently, a broker’s fees are paid by the lenders as commission (usually around 0.6 percent) and a smaller ‘trailing’ commission (of about 0.15 percent) for the life of the loan. A broker’s advice can be invaluable – and there are some great brokers out there. But those not so trusty brokers who push homeowners into loans they may not be able to afford so the broker can maximise his or her commission were also a focus of the Royal Commission.
How might this affect you as a borrower? Well, the Haynes Commission has recommended changes to how mortgage brokers operate and are paid, including:
- Mortgage brokers to act in the best interests of the borrower, rather than the lender – with fines for breaching this law
- Borrowers pay an upfront fee to mortgage brokers for their services, rather than the lenders paying the broker commission
- Mortgage brokers would no longer be paid ‘trail’ commissions by the lenders for new loans over the life of the loan.
This is quite a big deal, as it could motivate borrowers to bypass brokers and head straight to their lender to apply for a loan rather than pay broker fees. Currently, the government has not opted to ditch commissions over upfront payments for brokers, but the trailing commissions are set to be curtailed.
Inner city real estate: a buyer’s market
Last year was a rollercoaster for Sydney real estate, with predictions that the property market may keep heading south for some time before it starts to recover. Depending on who you listen to, it’s thought that the market will decline around 15-20 percent overall.
While this isn’t great news for homeowners keen to sell – either in the inner city or elsewhere – it’s a bonus for home buyers who’ve been locked out of the market due to the high prices. Also positive is that there are more properties on the market in Australia than there have been for seven years, making it a ‘buyer’s market’ – particularly if you have finance in place.
Some experts predict the coming year will see fewer homes being sold at auction. If a home is put to auction and passed in, research by Domain indicates that one third will be sold in the weeks after by savvy buyers securing a post-auction deal. So it’s always a good idea to have your negotiating hat on if you’re all set to bid and your dream home is passed in.
Restrictions lifted on interest-only lending
The new year brought some good news for lenders, with the Australian Prudential Regulation Authority (APRA) lifting its cap on interest-only lending (a common loan taken out by many property investors geared towards building their portfolio).
The banking regulator reportedly believes the restriction had served its purpose of restricting investors in the property market – and giving first home buyers a look in.
Where to from here?
We’re yet to see any recovery in the market, but that’s not necessarily a bad thing if you’re looking to buy. In regards to borrowing limits and lending criteria, it’s a waiting game to see what banks, lenders and APRA will do going forward.
The upcoming election also set to impact the property market (if Labor is elected, negative gearing and capital gains tax reforms are almost certain). So for anyone with a toe in the Sydney real estate market, it’s set to be an interesting year all round! Watch this space.