The Financial Services Royal Commission has brought to light some irresponsible lending practices by Australia’s biggest banks. This has led to some uncertainty for homeowners who have been thinking about putting their home on the market. In recent months one of our most commonly asked questions, at Elanora Realty has been just how will the banking royal commission affect Gold Coast property prices?
When the financial investigation was announced, the Reserve Bank warned that there could be consequences for the property market. The bank’s deputy governor, Guy Debelle, was concerned that the commission would force banks to tighten lending criteria which in turn could drive down house prices.
Now that the commission has unearthed a number of what can only be described as questionable practices, it looks quite likely the banks will indeed, have to do something about their lending standards. In fact, the Australian Prudential Regulation Authority (APRA) has stated that it expects financial lenders to better reflect household expenses and home loan interest repayments in their mortgage calculations.
Tighter lending criteria will affect house prices
The tightening of lending restrictions has already become evident with many home loan applicants being turned down or offered lower principal amounts. As a consequence, we could see a decline in the number of home loan applications which in turn would mean fewer pre-approved buyers in the property market.
Tighter lending also has the potential to drive down property prices, not just on the Gold Coast, but Australia-wide. Home buyers will have less money to spend when bidding on real estate which, sooner or later, will diminish house prices. As a result, this can, and will, have a significant impact on Australians who want to sell or refinance their property. Homeowners will be now at risk of receiving a lower price for their property than they anticipated.
Mortgage finance is one of the main factors driving the house price increases in recent years. Conservative lending practices, according to Economics lecturer, Cameron Murray of the University of Queensland, will indeed be likely to put downward pressure on property prices. He stresses that the housing market is ruled by feedback that price rises attract more buyers, therefore, increasing prices and that the reverse is also true. So fewer buyers, with less to spend, will result in lower house prices.
What is more, It has also been noted that areas with low economic and population growth, may see an increased exposure to price correction.
Taking a hard line on the banks may be a popular move, but a significant fall in property values and the harmful effect on consumer confidence could have a negative outcome for the economy. It’s all about trying to preserve the balance and at times that’s not as straightforward as it seems.