What the Banking Royal Commission will mean for your home loan
The Banking Royal Commission is finally drawing to a close, and to say events of the past year have shaken up the banking world would be an understatement.
Since it started in late 2017, the big banks have faced criticism for dodgy practices, executives have been grilled over remuneration policies, and regulatory bodies have come under fire for failing to hold them all accountable.
Fortunately, one major outcome of the commission has been highlighting to directors that their responsibility isn’t just to generate short-term returns, but to operate the company with an eye towards its long-term health.
As Mozo Product Data Manager, Peter Marshall, explained, “Long-term health for banks means not just focusing on the sugar hit of getting lots of sales through the door. It’s avoiding having to spend millions of dollars on compensation and litigation.”
With the Commission’s final report due for release on Monday 4 February, we’ve taken a look at what this all means for everyday Aussies. Of course, charting the long-term outcomes won’t be easy, but there are a few things we can expect to see.
Will banks be regulated more tightly?
Commissioner Hayne emphasised that additional laws or regulations aren’t necessary. What’s needed is for regulatory bodies to actually apply existing regulation.
“ASIC received a lot of criticism throughout the Royal Commission for what was perceived to be a light touch approach, so we can expect it to become more litigious in the future,” said Marshall.
“This is a good thing in a way because we’ll get some nice, clear rulings on some of the grey areas that exist currently.”
But the process won’t be straightforward, and it could take many years for it to filter through to the system. Banks could find themselves constantly on the back foot, and as they face off against ASIC and APRA it will be up to courts to decide on final outcomes.
Will the Royal Commission affect my ability to get a loan?
The short answer is it already has.
One of the main motivators of the Royal Commission was to crack down on irresponsible lending, and banks are currently in the process of cleaning up their act. Already they’re being much more careful in their dealings with customers.
“Credit has been harder to come by lately and I expect that to continue,” said Marshall. “Banks are under a lot of pressure to be more stringent when assessing loan applications. Home loans and credit cards will become more difficult to qualify for.”
Such conditions will mean Aussies will have to go to greater lengths to prove their creditworthiness. So if you’re looking to borrow, you’ll need to decrease your spending, get rid of any unnecessary loans, and reduce credit card limits, even if they’re not being used.
Going forward, we might also see more borrowers turning to non-bank lenders, who have largely escaped the attention of the Royal Commission. Given their flexibility, such lenders could be less likely to apply such strict criteria to marginal borrowers.
How does open banking play into this?
Open banking is set to be rolled out July 2019, and already it’s being hailed as a potential fix to some of the problems facing the banking world.
Giving customers access to their data through open banking will make switching between banks much easier, not to mention put those customers in a better position to negotiate and get better deals (assuming their financial history isn’t spotty).
And in addition to increasing the bargaining power of everyday Australians, it will also eliminate some of the hurdles new lenders sometimes face, further driving competition in the home loan market.
Along with Comprehensive Credit Reporting, open banking will help lenders streamline the process of assessing customers’ financial backgrounds. With information on income and expenses more readily available, banks and lenders will be able to make more responsible decisions in their dealings with customers, rather than relying on estimates and assumptions.
If you’re worried about your chances of getting a loan in light of all this, check out our guide to improving your credit score for a list of things you can do to put you in better standing.
If, on the other hand, you’re feeling quite confident, head over to our home loans comparison page for an overview of your options.