The first day of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has begun to reveal the extent to which unhealthy lending practices have affected everyday Australians entering new mortgages. But the news is overall good for those seeking financial advice, as more stringent measures are taken to regulate the financial advisory industry.
It has been revealed that the efforts of the Australian Prudential Regulation Authority (APRA) in 2017 to curb the high percentage of new interest-only loans has been a marked success, more so than was expected by commentators or APRA itself.
In March 2017 APRA made efforts to curb unhealthy lending habits by requiring that interest-only lending had to be reduced to under 30 per cent of new loans. The major Australian lenders have met this requirement and gone further, with new interest-only loans now at 15.22 per cent, according to APRA’s December Quarterly ADI Property Exposure report.
Because of this, the major banks are expected to lower interest rates on investor lending as well as fixed rate interest-only lending, to help balance the books.
This is great news for first home buyers, but not so much for investors or speculators. Furthermore, a recent report by the Grattan Institute has called for a number of measures to help protect the economy from unavoidable fluctuations in the real estate market, especially as it relates to interest rates.
“The Commonwealth government can improve housing affordability somewhat – and immediately – by reducing demand. It should reduce the capital gains tax discount to 25 per cent; abolish negative gearing; and include owner-occupied housing in the Age Pension assets test,” the report argued, continuing with a call to reduce Australia’s immigration levels.
“Unless the states are prepared to reform their planning systems, the Commonwealth should consider tapping the brakes on Australia’s migrant intake.”
For those first home buyers seeking financial advice, regulations are increasing within the industry, with anyone providing financial advice by January 2024 required to have studied a relevant degree and undertake a professional year and pass an associated exam.
This means that potential home owners will have easier access to financial advice that is intended to benefit their financial position, and not to simply sell them loans that they cannot repay.
It is yet to be seen whether similar measures will be taken on the mortgage brokerage industry as a result of the Royal Commission, with the Australian Securities and Investment Commission (ASIC) reporting last year that those borrowers who used mortgage brokers were “more likely to obtain an interest-only loan compared to those who went directly to a lender.”