The Banking Royal Commission

[Carn The Berries]

Bagging it along with the majority of people in the industry and consistently with the findings of a number of other reviews into the issue... Hardly groundbreaking I would have thought.

Billy boy would want to hope that property prices rebound in his first 12 months in office if he actually goes through with implementing this recommendation... I guess you can be pious and arrogant when you're likely going to win in a landslide...

 

[Crankyhawk]

Sadly, the crap brokers will stay. The good (smart) brokers will realise their decades of fighting for the little guy has failed.

Horrible outcome that solidifies Hayne, Orr and co as either Incompetent, Impossibly Arrogant or Corrupt.

They clearly did not understand the mortgage broking industry, relied on what CBA told them and never asked any relevant questions of the consumer, (or brokers for that matter) or appear to have considered any of the economic outcomes. It wasn't even in their charter (banking misconduct) - the recommendation has come from CBA "guiding" Orr and Hayne to an outcome not based on any review of relevant data - rather perhaps a personal ideal.

Hayne decided to kill broking because it could be bad. Not that it was (<0.5% of complaints, >60% of market), but that it COULD be. Banks are greedy, $$$ first - consumer last industry, so even though brokers from all appearances operate differently, they are paid in a way that COULD be exploited.

I laughed at his support of comments that brokers get paid $6000 for a loan, and customers don't see that value. A settled loan takes on average 5-6 hours work, some much more. For every settlement, brokers would provide professional services to up to 7-8 people each taking 1-3 hours. The average broker generates about $80k per year in revenue, employs 0.4 staff and has gross expenses of 30-35k. The average broker earns about $15-20 per hour. The average broker has minimal income in the first year, and has a career span of less than 7 years. This decision essentially halves that income.

First thing to go will be customer service - by necessity, support and ancillary staff will be made redundant and "broking" will purely come down to churn and charge rate. Every phone call, every appointment, every document provided will need to be charged for. I can think of an industry that works like that - lawyers. Now there is an industry that for the most part we would be better off without.

The good brokers will move on to other fields, those just in for a quick buck will move to full sales/snake oil mode. Brokers will drop from 60% to maybe 10% of the lending market - reduced to helping the elite (that can and will pay anything for a deal) and the unique or troubled (that can't get a deal any other way). It will set finance in this country back a decade or more.

Smaller lenders will be squeezed out, unable to compete on reach, scale and ultimately price with the Big 4.
Big 4 will increase their monopolistic powers and then use these powers to increase profits.

Consumers lose big time. Less choice and competition, less service and education, more fees, higher rates and greater restrictions on lending.

Economy will lose overall with massive amount of new underemployment, rising costs of housing and inflexible markets. Majors will force applications online, and those at most risk (low income earners, those outside the box, anyone with difficulties in learning or language) will suffer most.

To the average person on the street - how many times will you apply after being told "no" by your bank? Once, Twice, three times? Each time you could waste hours of your time, and hurt your potential for a future approval. See a broker instead who will work through 20-25 "no's" in the first hour(s) before giving up, or finding you multiple potential options you can choose from.

A person might be smart, but people are inherently dumb and easily manipulated. The big banks can now do anything they want to kill their biggest profitability threat - and call it in the "Consumer interest". The media and government (who rely so heavily on their investment and 'donations') will have no choice but to report favourably.

The industry has just been diagnosed with an aggressive cancer, and Labor is refusing medical treatment as that's the popular thing right now.

Will add that the elite don’t need brokers, banks fall all over themselves to offer loans (one of the big4 was giving me 0.8% below variable rate)

 

[Halloween Jack]

Will add that the elite don’t need brokers, banks fall all over themselves to offer loans (one of the big4 was giving me 0.8% below variable rate)

mate, we are easily getting over 1% discount for our clients, as much as 1.5% below standard variable rate at the big 4.

 

[Simon_Nesbit]

Will add that the elite don’t need brokers, banks fall all over themselves to offer loans (one of the big4 was giving me 0.8% below variable rate)

I hope that 0.8 was actually not just a discount off standard variable, but rather a further discount from their offered package rate.

0.8 is essentially their "on the table" offer to everyone. Not unusual to see 1.2, even 1.4 when banks are in aggressive modes of acquisition. CBA Standard Variable is 5.37, the loan I wrote yesterday (yes, supporting the evil empire! - Existing CBA customer on fixed rate and cross-secured in LMI territory so no chance to move) is at 3.92 (1.45 discount). Still a lousy offer, but with only ~620k in borrowing (230k new) the 10k saving in LMI to avoid refinance was sufficient to keep the business with CBA. (Would have split facilities across lenders, however the customer preference was for easier accounting/management over the 0.33 left on the table for the new money).

Fixed rate expires in August 20, at which time the whole shebang will be repriced, and then compared to what's available.

 

[Simon_Nesbit]

Edit - Crankyhawk 's post (potentially - based on assumption he has quoted what the bank told him) shows exactly what the issue is with the potential loss of Mortgage Brokers.

The customer thinks they have a good deal, so don't bother looking around. The bank makes an extra 0.2-0.7 off the loan than they would if the loan was sourced through a broker - or if you believe that brokers cost banks more, then add that figure too.

No wonder big banks don't like us - we are the torch, they are the cockroach under the fridge. The Government thought the Royal Commission was going to be the big boot, but it threw the torch away instead.

(I suck at analogies)

 

[Hawk Dork]

They might if rent is high enough to mean the property price plus capital growth minus expenses works out in the black.

so they wont be competing with someone negative gearing then as I said

 

[Crankyhawk]

Edit - Crankyhawk 's post (potentially - based on assumption he has quoted what the bank told him) shows exactly what the issue is with the potential loss of Mortgage Brokers.

The customer thinks they have a good deal, so don't bother looking around. The bank makes an extra 0.2-0.7 off the loan than they would if the loan was sourced through a broker - or if you believe that brokers cost banks more, then add that figure too.

No wonder big banks don't like us - we are the torch, they are the cockroach under the fridge. The Government thought the Royal Commission was going to be the big boot, but it threw the torch away instead.

(I suck at analogies)

Yes, it’s what the bank told me; bank person also said they couldn’t get less themselves.
Ah well I paid it off anyway.

 

[Crankyhawk]

I’m not above posting data to prove my stupidity
Investment property loan in 2018 (about 6th year of loan) at rate of 4.9%.

Oh well at least government paid a chunk of it...

 

[Taylor]

so they wont be competing with someone negative gearing then as I said

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

 

[Maggie5]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

Not necessarily, might just reduce the number of those that want to negative gear.

 

[Taylor]

Not necessarily, might just reduce the number of those that want to negative gear.

What would those people do?

Is there anyone who is negatively gearing a property that isn't the home of someone else paying rent at below the cost of owning and running the property themselves?

I could see an idea future where the cost of rent is the same as owning, so there would be no rentals as anyone who wants to live somewhere could simply buy.

...but that would lift the threshold for having a roof over your head, not reduce it.

 

[Carn The Berries]

Not necessarily, might just reduce the number of those that want to negative gear.

That seems like the most likely option to me, given the change would have a grandfather clause new entrants wouldn't have enough market power to push rental prices up. The fall in supply would likely have a downward effect on property prices.

 

[Carn The Berries]

What would those people do?

Is there anyone who is negatively gearing a property that isn't the home of someone else paying rent at below the cost of owning and running the property themselves?

I could see an idea future where the cost of rent is the same as owning, so there would be no rentals as anyone who wants to live somewhere could simply buy.

...but that would lift the threshold for having a roof over your head, not reduce it.

The difficulty with that future is that the cost of renting would have to, for a period of time anyway, incorporate being able to save a sufficient deposit to get into the housing market. From a theoretical economic perspective falling house prices should lead to cheaper rent but, at least from what I have seen in the markets in both Melbourne and Perth, rent is downwardly sticky.

 

[Hawk Dork]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

you cant negatively gear old homes under the new rule if Labor win

rewind and see where you jumped in and got it wrong

 

[Maggie5]

What would those people do?

Stock market?

 

[QuietB]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

So invest in something else. Simple.

Investing vast amounts of money in existing house stock does zero for the economy.

1/ It massively reduces the tax take for governments
2/ It contributes almost zero economic activity or economic growth to the general economy - it is a 100% non productive investment
3/ It inflates the property market
4/ It removes huge sums of money from the economy that could either used as disposable income or invested in infinitely more productive parts of the economy creating jobs, economic growth and maybe even, god forbid, something resembling innovation.

 

[Number37]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

Or the property value has to fall so that the gap between rental income and mortgage payments becomes smaller.

 

[Taylor]

Or the property value has to fall so that the gap between rental income and mortgage payments becomes smaller.

This does require a sale.

 

[CheapCharlie]

Royal commission hasnt delivered much in its report to stop the same things happening again.
Waste of a good crisis really

 

[Baltimore Jack]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

Labors policy only relates to properties after the legislation is passed

 

[Number37]

This does require a sale.

Which will & should happen when investors do their sums.
Throwing good money after bad is a quick way to the poor house for any investor.

 

[pugsville]

What would those people do?

Is there anyone who is negatively gearing a property that isn't the home of someone else paying rent at below the cost of owning and running the property themselves?

I could see an idea future where the cost of rent is the same as owning, so there would be no rentals as anyone who wants to live somewhere could simply buy.

...but that would lift the threshold for having a roof over your head, not reduce it.

Basic misunderstanding about negative gearing and rents. There is not a pool of housing that is below the market rates due to negative gearing.

rents are determined by how much the market will bear, and once the rent is established in order to make a loss the mortgage is adjusted. The costs are adjustable at will. Why would a landlord take less than than the market rate? Just make mortgage length shorter,
'

 

[Bombermania]

Royal commission hasnt delivered much in its report to stop the same things happening again.
Waste of a good crisis really

If fully implemented and if the regulators learn to do their job then yes there will be change, I would have liked Haynes to have gone further in a few areas but then again no royal commission is perfect.

 

[its free real estate]

Remove the negative gearing and rent has to go up. Doesn't it?

No.

 

[Bombermania]

The negative gearing allows a rental to not be profitable year to year, with the hope that the property value goes up to compensate for that.

Remove the negative gearing and rent has to go up. Doesn't it?

If so, who is really paying for a first home buyer to get into a place?

Most properties are only in the negative gearing stage for three to four years before becoming positively geared and the impact on rents from removing negative gearing will depend, in some cases it will cause rents to rise but there will be cases where it wont make any real different.