The Reserve Bank has warned that the banking royal commission could drive down house prices and reduce the amount of money Australians can borrow.
In a sign of the growing unease within the Reserve, also shared by official Treasury departments, the bank’s deputy governor Guy Debelle said the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry could also lead to ordinary Australians being barred from borrowing.
It has unearthed a string of problems within the nation’s financial sector, with expectations growing that Commiss-ioner Kenneth Hayne will recommend substantial changes to lending standards. Some banks have signalled they will tighten criteria for loans. Dr Debelle, in a speech on the outlook for the Australian economy, said there was a risk lending standards could be tightened after the royal commission.
“This may have its largest effect on the amount of funds an individual household can borrow, more than the effect on the number of households that are eligible for a loan,” he said.
“This, in turn, means that credit growth may be slower than otherwise for a time. To me, that has more of an implication for house prices than it does for the outlook for consumption.”
The Federal and WA treasuries expressed similar concerns in their statement of risks released alongside their recent Budgets. State Treasury singled out the issue as a risk to the WA housing market.
“Any potential tightening of residential lending criteria or any further regulations imposed ... could weaken demand in the property sector,” it said.
Federal Treasury used last week’s Budget to highlight the royal commission and its wider economic repercussions. “There is also a risk that household spending may be affected by any unanticipated tightening in financial conditions,” it said.