The banking royal commission fallout is expected to lead to slower growth in home lending

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  • Deloitte says growth in the number of new mortgages is flatlining and may dip over the next year.
  • And the banking royal commission is creating uncertainty in the market.
  • Any regulatory changes flowing from the royal commission will inevitably leader slower market growth for lending.

The financial services royal commission is creating uncertainty around new rules and legislative change expected after the inquiry reports into misconduct in banking, according to the 2018 Deloitte Mortgage Report roundtable of lenders.

Changes around conduct and consumer interest may take longer to work their way into any regulatory changes but will inevitably lead to slower market growth for lending, Australia’s leading lenders and mortgage brokers told Deloitte.

Deloitte says lenders are already responding to the commission, and other inquiries into banking, and improving many of their processes.

“Conduct, compliance and distribution challenges will continue to take centre stage for lenders as the Royal Commission moves through 2018, and the coming of the open data regime gives promise to what will become a more ‘customer in control’ future,” says James Hickey, Chair of the Deloitte Australian Mortgage Report roundtable.

Heather Baister, Deloitte financial services partner, says some of the commentary and issues coming out of the Royal Commission are areas where action is already occurring.

The Combined Industry Forum comprising banks, broker groups and consumer representatives, is already looking into ways of addressing the issues of transparency, distribution oversight, as well as accountability around mortgage lending.

This is on the back of the review by the corporate regulator, ASIC, into mortgage broker remuneration and the continued focus by prudential regulator APRA on serviceability assessments by lenders.

“There’s every reason though that market providers should be cautious given the heightened uncertainty around the future regulatory landscape,” says Baister.

“Maybe ASIC will return with sharper teeth?

“While there are current laws already in place to manage conduct, I expect to see a greater obligation for lenders beyond the current ‘must not be unsuitable’ legislative hurdle.

“In the future, lenders will have to consider how they can demonstrate that the customer has a true understanding of their product. This will mean a more thorough assessment process, tailored to individual customers and their understanding of the loan. This will inevitably slow market growth.”

Australia’s leading lenders and mortgage brokers predict the nation’s housing settlement volumes will either remain flat or more likely decrease by up to 5% from the highs of previous years.

Deloitte says this will provide an opportunity for first home buyers and owner occupiers to get more traction.

The mortgage market has been flatlining after three strong years, as this chart shows:

This year will be the second consecutive year since 2012 that the level of new mortgages either flattens off or reduces.

However, Deloitte Access Economics’ Director Michael Thomas says the residential market generally continues to be buoyed by other fundamentals.

“Underlying demand remains solid with strong, albeit uneven, population growth expected to continue into 2020. Jobs growth has also been strong, especially in Victoria,” he says.

“The outlook for construction activity in the near term varies across the state. For both NSW and Victoria, growth in housing construction has slowed from its peaks but remains at high levels and is underpinned by solid underlying demand.

“Taken together with the outlook for interest rates, slowing house price growth, moderating the prospect of further capital gains, restrictions on lending, such as on interest-only loans and loans to investors as well as to lending to foreign investors, we expect a period of moderation, rather than an abrupt adjustment.”

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