Banking Royal Commission could hit house prices

Posted: 19 April 2018 9:26 am
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Greater lender scrutiny could dampen home loan and property demand.

RiskWise Property Research chief executive Doron Peleg has claimed recommendations from the Banking Royal Commission could hit property values.

Peleg pointed to the Commission's finding that the current processes lenders use to gather information on borrowers' incomes, expenses and debts are flawed. The finding has seen banks make moves to scrutinise borrowers' income and expenses, with Westpac announcing it will require more detail on customer expenses.

“In the short term at least, this is likely to result in a lower volume of loans, as seen in the UK which had a 9 percent drop in volume as a result of the 2014 Mortgage Market Review (MMR) to address lax lending standards,” Peleg said.

Peleg said this would put areas of low economic and population growth and low demand for dwellings at risk of price corrections.

“Properties that largely appeal to investors, such as small units, carry a higher level of risk. The likelihood that some investors do not have sufficient cash to cover ongoing shortfalls between the mortgage repayments and the rental return is higher,” Peleg said.

Peleg forecast that properties at the upper end of the price spectrum would also carry a high degree of risk.

“On the other hand, houses in capital cities that enjoy strong economic and population growth, e.g. Hobart and the Western Suburbs of Melbourne, which are affordable areas that appeal to both owner-occupiers and investors, carry a lower level of risk.”

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