Banking Royal Commission

 

You may have noticed an increase in attention with regards to the Banking Royal Commission. It has been set up to inquire into and report on misconduct in the banking, superannuation and financial services industry.


From a banking perspective, what has come out from the Royal Commission is that most approved loans didn’t require any sort of actual assessment of a borrowers’ monthly expenditure. Instead, some banks used a measure called the Household Expenditure Measure (HEM), which is based on more than 600 items in the ABS Household Expenditure Survey (HES). The HEM is calculated as the median spend on absolute basics and not reflective on today’s actual expenses. It’s likely that banks will have to adjust their assessment of expenses and will have to use a more realistic assumption of borrowers’ expenses.

This will effectively mean that the size of loans will decline as well, there will be less active buyers and could lead to softer prices or at least slower growth.

People will still have to buy and sell properties for lots of reasons such as they have outgrown their current property, kids have moved out of home, would like to reduce debt, moving closer to family/work/schools, moving to another area they prefer, divorce etc. At the moment we are seeing the most active buyers in the market being 1st home buyers and owner occupiers, who are looking to up size or downsize.

When you decide to apply for a loan or refinance, then the process will be harder, take longer and you will likely be able to borrow less money. So if you plan to borrow money or refinance in the future, then it could be an idea to review your expenses and eliminate any unnecessary expenses, as you could be required to show visa card statements/bank statements for a 6 or 12 month period confirming your actual expenses.