In December 2017 the banking royal commission commenced ongoing investigations into financial services organisations within Australia. Amidst the prevailing media coverage and revelations of malpractice, a silver lining is beginning to emerge as the industry shifts towards more responsible lending practises in which the consumer’s needs are prioritised.
Ongoing banking policies and behaviours that operate in the interests of corporations rather than consumers have progressed unchecked for quite some time. A key example found by the royal commission was the unrealistic use of the ‘basic’ Household Expenditure Measure (HEM) benchmark to estimate ongoing lifestyle costs when assessing a client’s viability for repaying a loan.
The ‘basic’ HEM benchmark assumes living expenses for a family of four sits around $32,000. To put that figure into perspective, the annual entitlement a couple receives on the Age Pension is $35,000.
Moving forward, banks may be required to undertake a detailed assessment of customers’ living expenses or use a more realistic benchmark; while this may be more time consuming it should lead to clients receiving more appropriate loans. As a result, bank lending already appears to be declining and it is estimated mortgage borrowing limits may eventually fall by 35%.
With bank lending reduced to more realistically repayable amounts, a direct flow on effect to the property market is anticipated. ‘What’s now being created is a more sustainable system for buyers and sellers that promotes more affordable habits,’ says Marshall White Sales Director John Bongiorno.
As the royal commission continues and industry wide changes begin to be implemented, organisations operating with sub standard or unethical practices will be subject to more rigorous regulation and scrutiny, paving the way for responsible and ethical advice to become the status quo.
If you are having difficulty ascertaining finance directly with your banks or would like any guidance or assistance, please contact the Marshall White Finance Team.