Royal Commission – How Will it Impact You?

From Day one, the commission heard stories of people who'd suffered misconduct, bad management or straight-out illegal behaviour. All up, Commissioner Kenneth Hayne has made 76 recommendations. The Federal Government said it would act on all of them. Here we look at how the recommendations may impact you when buying a property.

How it impacts my loan application?

Applying for a home loan has become much harder than it was in the past. As part of responsible lending, more information now must be provided as to expenses, income and existing debts. While annoying for some, this prevents people from over borrowing and getting themselves into financial stress.

How it impacts Mortgage Broker’s relationship?

Currently, 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.

This is as the Royal Commission spent a long time looking at the issue of responsible lending. That is, that financial institutions and advisors should have the best interests of their clients in mind when they recommend products that would cost them their hard-earned money.

The Royal Commission found massive gaps in way mortgage brokers currently operate due to the incentive Mortgage Brokers had to recommend higher interest rates.

Commissioner Hayne wants to change that. He's recommended that mortgage brokers must work in the best interest of their clients. If they're found not to do that, they could face civil (not criminal) charges.
However, this leave the potential for the the cost going to the lender rather than the borrower, as it has in the past.

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.

How it impacts search activity and consumer sentiment?

Realestate.com.au have seen the correlations between search history and access to finance, along with cost of finance. In places where it is harder to get a loan, such as Melbourne and Sydney, there has been a decrease in consumer sentiment, therefore decrease in search activity. In places such as Perth, where the property fundamentals are positive (e.g. solid job and population growth); less available money has affected the market.

What happens next?

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 election will give us an idea as to how tax incentives for investors will be handled in the future.