Banking Royal Commission: Economist Warning

  • Oct 04, 2018 AEST
  • Team Kalkine
Banking Royal Commission: Economist Warning

Banking royal commission has laid out the policy recommendation and a lot seem to be riding on the same including the stability of Australian property markets. Consequences which are unintentional are expected from the royal commission’s recommendations referred here as including a steep fall in house prices on bank lending spurred by a royal commission.

Chief economist Paul Dales of Capital Economics said while house price falls have been small to date, at least in its recent history Australia could be in for a record housing decline. A protracted slowdown in the housing market is forecasted by Mr. Dales because of a crackdown in bank lending standards, rising interest rates and the banking royal commission itself.

It is a different situation in America, where lending was just cut off from one day to the next during the global financial crisis, banks just decided not to lend anymore. Morrison Government was notified by the Treasury and Reserve Bank of Australia privately, with its response in terms of regulatory to the banking commission and fears that the harsh penalties could slow the lending to home businesses and buyers. 

The ARPA (the bank regulator) and the Reserve bank will provide private tutorials to understand the full impact of any decision Commissioner Kenneth Hayne makes. The RBA governor Philip Lowe indicated that lending to owner-occupiers remains solid and appears ok with the pace of property price falls so far. To cap growth in investor loans at 10 percent per annum it is demand from investors that is taking a hit following earlier moves from the banking regulator APRA, and later to limit the proportion of interest-only lending which is apparently a favorite loan product for many investors in property.

The most probable outcome from the commission is that some of the bad lending is removed that has been seen. Also, in the next federal election the labor would be sticking to its policies around capital gains taxes to take pressure of the price off the market. However, first home buyers still needed more support which is expected form the possible further independent rate rises and royal commission recommendations from the major banks that could produce as much as 20 per cent from peak to trough in terms of property price declines.

Although a lot of what APRA did is aimed at investors, it is however, getting tougher to fetch a loan as the lending standards are toughened by the banking industry.

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