How the Banking Royal Commission Effects the Property Market

Prime Minister Malcolm Turnbull has recently ordered a Banking Royal Commission, costing $75 million, into the five biggest Australian banks; CBA, Westpac, NAB, ANZ and Macquarie. These five currently occupy over 80% of the mortgage market.

The Banking Royal Commission was triggered after extreme pressure from the opposition and nationals and how banks were treating farmers and large land holders in Queensland and New South Wales. Many had recently lost their properties due to banks changing their lending criteria.   

Australia is fortunate enough to have one of the strongest and most regulated banking systems in the world. This is supported by our country’s ‘AAA’ credit rating and the fact that the five biggest banks are grossing approximately $40 billion a year in profit. They pay their fair share of corporate tax and employ more than 160,000 Australians nationally which form an integral part of our economy and creates confidence to grow businesses, employ people, buy property and to own banking shares.

Banks, like any other large and powerful business group, are under scrutiny as they control so much of Australia’s financial and economic market. It is vital for our banks to make large profits, because if our banks aren’t strong, then our economy isn’t strong either. This filters through to the real estate market, the cost of living, the costs of running a business – just about everything is influenced.

The concern is that the average customer isn’t getting a fair deal as the banks load up their interest rates, simply because they can. Currently the base interest rate in Australia is 1.5%, this is the lowest it has been since the 1940’s. Yet the banks sometimes charge exuberant credit card fees up to 22%, personal loans up to 14% and home loan mortgages are charging between 4% - 6% depending on the credentials of the borrower.

The Banking Royal Commission is designed to ensure that the banking landscape is fair and equitable for everyone and that the banks are not controlling interest rates through collusion and that fair competition creates a viable lending environment for all private and business customers.

The banks play a major role in controlling the price of property through their mortgage interest rates and lending criteria. We have seen property prices drop in some areas where banks have earmarked that area as ‘high risk’ and changed their lending criteria to ensure borrowers puts down 30% - 40% deposit instead of the usual 20%.

Ultimately the Banking Royal Commission is largely seen as a positive. Prime Minister Turnbull has made a decision that he was initially not in favour of, however it is in the best interest of the country.