How The Royal Commission Will Affect Bank Lending

SINCE DECEMBER of last year, the Federal Government has been conducting a Royal Commission into the banking industry, as well as financial and superannuation services in general.

Some areas covered so far (relating to lending practices) have included commission structures for brokers and staff, as well as cash incentives being offered by banks.

Plus, and potentially inadequate monitoring of customer information, with some media reports referring to ‘liar loans’ – where customers inaccurately declare their living expenses and other costs.

The Commonwealth Bank, the NAB and Westpac have all come under intense fire for their lending practices. While large mortgage broking company Aussie Home Loans (owned by Commonwealth Bank) has been heavily criticised for failing to meet compliance obligations.   

Because a Royal Commission involves a vast amount of expense … there will most likely  be a number of changes to the financial services industry. 

What should you look out for?

Well, a lot of the outcomes will probably relate more to the internal workings of the banks and perhaps changing the commission structures and financial incentives.

What about the effect on borrowers? Again, initial evidence suggests that the major banks will more than likely be required to tighten their credit monitoring policies.

And in particular, increase scrutiny on and verification of areas like living expenses, current debt obligations and other ongoing costs.

A number of banks have recently changed their application and checklist requirements to include a greater breakdown of information – involving a lot more questions.

In short, it is going to be rather more onerous when applying for consumer credit; and banks will be far more cautious in their lending practices.

And for Commercial property?

The good news for commercial investors is that the focus to date has been almost entirely on consumer lending and home loans.

And  scant reference has been made as to commercial lending practices – at least in the short term.

Therefore, with consumer lending likely to become less profitable for banks, you could them to change their focus towards lending on commercial property.

Bottom Line: This may mean that some of their pricing becomes more competitive and potentially, lending may be slightly more flexible – as banks look to increase their exposure in the commercial market.

Therefore, with supply and demand for credit a big factor in property prices, this could be a great time for you to invest in commercial property.

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