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MoneyBuying a house? Here's how the banking royal commission affects you

05:20  11 february  2019
05:20  11 february  2019 Source:   msn.com

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Analysts had warned that the banking royal commission could make it harder for homebuyers to get a loan. But has the final report recommended any changes that will make buying a house more difficult?

Big banks could face criminal charges after Royal Commission findings. The report also called for the banking executive accountability regime (BEAR) to be applied to the Default interest to be waived on loans in areas affected by drought and natural disaster under the recommended changes.

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Analysts had warned that the banking royal commission could make it harder for would-be homebuyers to get a loan.

That ended up coming to pass as banks began cracking down on home loans last year, but it raises the question: did the final report recommend any changes that will make buying a house even more difficult?

We've taken a look at what the recommendations mean for home buyers.

Is it going to be even harder to get a mortgage now?

Nope. One of the big issues flagged before the royal commission started and during the inquiry was how banks assess would-be homebuyers for a loan.

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The Royal Commission into Misconduct in the Banking , Superannuation and Financial Services Industry, also known as the Banking Royal Commission and the Hayne Royal Commission

When the banking Royal Commission was announced in December 2017, many commentators believed a large proportion of the final report would be on home loan lending. In particular, the way the banks lend to home buyers as well as the amount.

Buying a house? Here's how the banking royal commission affects you © Provided by ABC Business But since last year, the major banks and other lenders have made changes to loan applications to better verify the income and expenses of applicants to ensure they can afford to repay their debts.

So, getting a loan had already become a lot tougher before the royal commission — a move that was recognised by Commissioner Kenneth Hayne in the report as a "view to improve compliance".

As a result, he ended up recommending no changes to responsible lending laws. Instead, Mr Hayne left it up to the Federal Court and banking regulator APRA to determine what is required to comply with the National Consumer Credit Protection (NCCP) Act.

"I think if APRA hadn't already moved to tighten lending standards in late 2017, going into 2018, then the royal commission would have had an impact," AMP's chief economist Shane Oliver told the ABC.

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The Banking Royal Commission is causing a scandal in the finance world and the impact will be far reaching. On the positive side, if they are upgrading their property, a lower price environment could be to their advantage because they may invest less money to buy a better property.

Explainer: How Does The Banking Royal Commission Affect You ? Image: iStockSource:Whimn. The purpose of the Royal Commission was to investigate whether any of Australia’ s banks and financial services had engaged in misconduct, and if criminal or other legal proceedings should be

"But as it turned out they had, and that has brought lending standards into being consistent with the NCCP ACT, so I don't see a further impact.

"In fact, the royal commission basically seems to be saying [the tightening has] already happened and to imply there was nothing further to do, other than what was already happening."

Mortgage brokers now need to act in your best interest

It seems like a pretty obvious measure on the surface, but when you dig a little deeper you'll find that the royal commission actually identified instances where mortgage brokers weren't necessarily acting in their client's best interests.

It all came down to how mortgage brokers are paid, with Mr Hayne pointing out a conflict of interest between brokers recommending loans and the banks paying them.

Brokers get paid a percentage of the loan amount, meaning they make more money if the borrower takes on a bigger debt.

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Here is how the royal commission report will affect you : LOANS. Regulators will force banks to tighten lending standards which could make it harder The royal commission recommends ensuring money is lent responsibly and it is expected that the availability of credit will be further restricted.

The banking royal commission ’ s final report recommends sweeping changes to address Here are the key ways the changes will affect you . 1. if you ’re buying a home. If you use a mortgage “Borrowers look to mortgage brokers for advice about how to finance what is, for many borrowers, the

As business reporter Michael Janda explains, there are two possible ways this conflict of interest could play out:

  1. Mortgage brokers could favour a home loan with a lender that is offering better commission rates;
  2. Brokers may persuade people (and even help them to fudge the figures) to get bigger home loans than people should have otherwise been given, so they receive higher commissions

The issue then becomes murkier because of something called trail commissions, which allow mortgage brokers to charge fees for as long as a customer has a loan.

Basically, if you have a 25-year loan, the broker might be getting commissions for the next quarter of a century.

(Although it's the bank that is paying this trailing commission, not the borrower).

It led Mr Hayne to point out in the report:

"The chief value of trail commissions to the recipient, to put it bluntly, is that they are money for nothing," he wrote.

"Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?"

So, he recommended that this practice should end, along with banks paying any kind of commissions to brokers, within two to three years.

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The banking royal commission was established in late December, after years of public pressure The royal commission has been asked to investigate whether any of Australia’ s financial services How has this affected customers? It’ s not just poor financial advice that’ s affected bank customers.

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He also recommended mortgage brokers should meet similar obligations to financial planners, by requiring them to put their clients' best interests first.

So, does this mean my loan will become cheaper?

Not necessarily. The Government is still looking into Mr Hayne's recommendation on banning broker commissions from lenders.

Currently banks can still pay mortgage brokers commissions, although it will be significantly less now that trail commissions have been banned.

Mr Oliver says it's possible they could decide to pass these savings on to borrowers (meaning your home loan could become cheaper).

But he says you'll probably see mortgage brokers raise their upfront fee now that trail commissions are gone, so the cost could end up being the same.

So what if changes to broker commissions were made in the future? Labor has already promised to back the ban if it's elected to government.

In that scenario, Mr Oliver said there will be knock-on effects for smaller lenders, who rely on these intermediaries to break into the market.

With bigger banks being able to outspend smaller banks on things like advertising and having more branches, Mr Oliver said you'll probably see more people going to the big banks for loans instead of going to a mortgage broker and paying an upfront fee.

And in that scenario, he says big banks will face less competition and they won't necessarily pass those savings on to consumers.

In fact, you could also see them raise their prices in the long term (meaning your loan will become more expensive).

UBS has become even more pessimistic about Australian home prices.
Australian home loan lending plunged again in December. The decline was so bad that it's seen UBS become more bearish on just how far prices will fall

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