Will property owners be worse off after royal commission?

Property research group RiskWise says property investors could be stung by royal commission scrutiny of borrowing capacity and lending practises.

It says that tighter restrictions could adversely affect property prices.

“The banking royal commission has found the current processes for ensuring prospective home loan customers provide true information regarding their incomes, expenses and debts, are flawed,” said RiskWise Property Research CEO Doron Peleg.

“This includes the details that are gathered by mortgage brokers, who generate about 50 per cent of the loans, regarding the living expenses customers provide in their home loan applications.

“It is also likely that the duration to approve loans will be significantly increased, and significant reduction is projected in borrowing capacity (as per UBS, house borrowing capacity could be cut by 21-41 per cent, depending on the borrowers’ income).

He said that areas with oversupply, low economic and population growth, and invester properties (not suited to fmailies) will be hit hardest by price corrections.

“Properties that largely appeal to investors, (i.e. not suited to families), such as small units, carry a higher level of risk. The likelihood that some investors do not have sufficient cash to cover ongoing shortfalls between the mortgage repayments and the rental return is higher,” said Mr Peleg

“Investors often use creative financial planning, and they often place strong reliance on cashflow and negative gearing. Therefore, further scrutiny on property investors is likely to significantly reduce their borrowing capacity, and this will mean demand for such properties will be reduced.”

More expensive areas and properties will also feel the pinch of tighter lending practises.

“Significant reduction to the borrowing capacity will have a direct impact on these properties," he said.

“On the other hand, houses in capital cities that enjoy strong economic and population growth, e.g. Hobart and the western suburbs of Melbourne, which are affordable areas that appeal to both owner-occupiers and investors, carry a lower level of risk."

Read more at www.nestegg.com.au

6 comments

I think that the banking ombudsman could have done a better job even considering that some victims may have been surprised to learn they were robbed. None the less, we now need to prepare for the fallout as the banks make plans to soften the impact to share holders. I expect those banks with pending class actions will fare worse as existing borrowers are leaned on. Share distributions will be slimmer perhaps?

if the banks are slugged with fines and class actions - maybe a 0.25% increase in mortgage rates would even things out and the shareholder dividends and share price is preserved

In my opinion ASIC the Government Regulator should have done a better job ...

It will be a lot harder for new borrowers to get a loan to purchase a property

...so the rentals will go up ?

Main purchasers will from overseas who do not need to borrow from our banks.

Aussies can borrow from overseas as well, but they shouldnt.

Need to keep profits with the big 4 banks

Rentals going up is not a bad thing. Good for pensioners with investment propertyin the SMSF. WIll help offset the dividident imputation losses should Slimy Shorten get in 

ASIC was imeasurably weakened by the Rudd government in 2008 when they toyed with the idea of merging it with APRA. It never recovered. They knew all about the Storm fiasco and other irregularities, but did nothing, all in the 6 years of an accident prone, mistake ridden, self abusing, hapless ALP government.

And the money that Abbott took away from ASIC had no bearing at all on the current situation? It's always Labors fault no matter what is going on in the LNP economy according to rusted on right wing people, no matter how far back they have to go. How about acknowledging that the current government is totally inept and couldn't give a toss about the battlers.

Seadove

Just watch after the Royal Commission, there is no way in hell that the battlers will be able  to get a loan to purchase a property as this is exactly what the banks are being criticized for ...lending to people who do/can not make repayments.

Should be good for the growing rental market.

Seadove, that $120m which Abbott cut from ASICS budget was simply a return of the$120m the Howard government provided for ASIC in 2006. Consider it a no interest loan if you're fair minded or if you want to make political yardage its a cut.

I'm saying that the Rudd Labor party led by Bill Shorten wanted to abolish ASIC alltogether. Finito..no more ASIC, swollowed by APRA.

Interesting that Melbournians and Hobartians might argue for lower immigration but without it they would not have the increased wealth from a rising property market.

Wealth created just by property increases is not real wealth. It is on paper

and when people cannot or will not pay the prices any longer, that wealth collapses. I have seen it in Ireland, house prices halved by 50% (now they are up again) but a lot of people lost their shirts. Watch what's going to happen when we increase our interest rates!

Watch what happens when jobs dry up in Melbourne. For the last 1000 years houses have been built where jobs are. Nothing has changed in that regard.

People in these population boom areas are speculating by buying res property then selling within months making tens of thousands after expenses.

 

The question: “will property owners be worse off after royal commission?”

That’s a matter of personal opinion, at least the general atmosphere will be a lot more honest and hopefully more transparent.

I don’t care much if property owners suffer a little, even though I am one. I am more concerned with people not purchasing too many investment properties, thus making it harder for the young people to get a foot in the door. In case I start a panic, property is not the only thing one can invest in.

"I don’t care much if property owners suffer a little, even though I am one. I am more concerned with people not purchasing too many investment properties, thus making it harder for the young people to get a foot in the door."

Well said Micha. Hope things improve for the young who strive for a foothold.

Hope so too :)

I have never owned a rental property and never, ever will.  Could not be bothered with the stress of getting bad tenants.  Better off buying good quality blue chip shares and sleep well at night.

 

 

Again baby boomers investing being blamed for house prices when it simply isnt so. Many younger ones have many more houses building a big portfolio and boasting etc. 

Also immigration is what has shoved up prices.

Bob Carr back in 1996 asked Howard to limit it as 1000 a week coming into Sydney pushing up price.  Today its Melbourne growing too fast for its infrastructure, jobs and houses. 

Supply and Demand is what determines prices.

Immigration plus overseas buyers have done even worse damage. Many overseas investors have left these mainy units vacant too limiting even further supply of private rentals. 

But not the only reason hard for 1st home buyers.   

No its the fact younger ones simply dont want to save for a deposit and go without as we all had too in order to buy a home usually on one salary and maybe a bit when she did a job between school hours. 

And we didnt have to outlay money on a smart phone for each family member - kids too and this can run up a huge monthly bill. 

Too easy to blame older folk - when will Professor Goldie who gets paid for standing up against this sort of smear - stand up for us - far too interested in Newstart, and often gets let down after saying need $50 a week more by man saying good more beer for me. She is slow learner for sure, but still an annoying woman imho.

I agee Val

there are too many young ones that cannot be bothered to save money for  a deposit for a home.they must have the best car TV etc. Go on holidays overseas even before they start working

BigVal, I dont understand why we allow foreign ownership of residential property? I know other countries do but they are in need of buyers we are not.

It is not just residential property ...it also includes farms, infrasture etc.

Suze, thats is where we need the foreign funds, large comercial eneterprises. But if you dont live in Australia permanently why buy a house?

The baby boomer generation is the most selfish in history!

Image result for baby boomers are the most selfish generation

Student loans were not available when the baby boomers went through

...they had to work and save for their studies

Let's not be too hard on the boomers. They are victims of circumstance just as our youth are today. Its true some oldies expect the youth of today to pay for their own retirement while also funding retirement incomes for boomers.  

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