The financial services Royal Commission established at the end of last year is starting to have an impact on property prices.
Here’s your guide to what the Commission is working on and how buyers and sellers can respond to the changes.
What is the financial services Royal Commission?
The Royal Commission is looking at whether Australia’s financial service companies have been engaged in any misconduct, including irresponsible lending. The companies under scrutiny include Australia’s big four banks: Commonwealth, Westpac, ANZ and NAB, along with a range of other loan providers like Aussie, AMP and St George.
How is the Commission affecting loans?
With allegations of misconduct already coming to light through the Commission, banking regulator APRA has asked lenders to tighten their lending practices. Buyers applying for new loans are now finding that the banks are looking very closely at their capacity to pay back what they will owe before granting pre-approval.
What are banks focusing on for loan approval?
Those applying for loans this year are starting to find that living expenses are a particularly strong focus for lenders. Before the Royal Commission, most Australian banks relied on the Household Expenditure Measure (HEM) 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?
Sydney’s real estate market is directly influenced by the banks, and this tightening of lending restrictions may already be shifting prices. CoreLogic’s April 2018 report had Sydney prices down 0.4% on the previous month – the first fall since November 2012.
In May that fall continued in both Sydney and Melbourne, however, Sydney fared better with a 0.22% decrease against Melbourne’s 0.5% fall. At this stage, analysts disagree about whether property values will fall more sharply over the coming years, or whether we’ve already seen the biggest decreases and prices are now stabilising.
What Sydney buyers need to know
In light of the Royal Commission, buyers looking at property in Sydney’s eastern suburbs this year should remember:
- It may take longer for your bank to grant pre-approval, so start the process early.
- You may be granted pre-approval for a smaller loan than you expect, so talk to local agents to find out where your budget will be best spent.
- Each lender will have its own response to the Commission, so shopping around for a loan provider is more important than ever.
What Sydney sellers should keep in mind
With buyers facing more challenges in securing their loans, sellers should focus on these areas to maximise their sale prices:
- Presentation that highlights your property’s best features, elevating it to the top of your potential price bracket.
- Smart sale timing that further emphasises what your property has to offer and avoids periods when the local market may be crowded.
- Getting expert advice from agents who know your suburb and understand how to market your property to the right buyers.