The Australian Government has just released the final report in the Australian Competition and Consumer Commission’s (ACCC) home loan price inquiry.
The investigation, which commenced in October 2019, with the interim report released in April 2020, addresses the need for Australian mortgage holders to ditch their “set and forget” mentality and opt to refinance in order to get more bang out of their home loan.
The interim report showed that existing borrowers with larger or older home loans are paying significantly higher interest rates than new borrowers, and that headline variable mortgage interest rates do not accurately reflect what customers are actually paying due to discretionary discounts offered by lenders.
Commenting on the report, ACCC Chair Rod Sims said, “if you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates.”
The ACCC is urging existing borrowers to switch lenders or negotiate their rate in order to potentially save tens of thousands of dollars in interest over the length of their home loan, despite impediments to the process.
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Although the gains from refinancing can be significant, consumers seeking a better home loan experience barriers at each step of the process, making it less likely for them to start or complete the switch.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort,” Mr Sims said.
According to the report, “The proportion of borrowers who stand to benefit from switching significantly exceeds the proportion of borrowers who say they intend to switch.”
Urging borrowers to engage in the home loan market and to become more aware of the benefits of switching, the ACCC recommends that lenders offer less opaque home loan pricing and provide an annual prompt to their borrowers with variable rate loans greater than three years old.
“This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender. It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector,” said Mr Sims.
The report also suggests the government allow the ACCC to “continue to inquire into and monitor competition and pricing in the home loan market.”
The regulatory board recommends two new measures be put in place for banks to make switching to different lenders less painful. These are:
While the federal government considers the recommendations, the Finance Brokers Association of Australia (FBAA) welcomes the change. Managing director of FBAA Peter White said, “We support the ACCC report findings to make banks more proactive with existing borrower interest rates. This ensures banks are more transparent as to what existing borrowers pay.”
The report recognises, however, that without direct regulatory intervention, two of the Big Four banks have reduced their reliance on discretionary discounting in an effort to provide consumers with more price transparency.
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The ACCC emphasised that with the Consumer Data Right going live on 1 July 2020, borrowers can now request their bank to share their home loan data with accredited third parties, which should further enable consumers to compare services for a better deal or to switch between lenders more easily.
CEO of the Mortgage & Finance Association of Australia (MFAA) Mike Felton also said they were pleased with the report’s recommendations.
“Improvements to the discharge process coupled with proposed consumer credit reforms that will place greater emphasis on individual circumstances and borrower information should assist to further reduce impediments to refinancing, result in faster overall turnaround times and improve access to appropriately priced credit,” Mr Felton said.
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Words by Katy Holliday
Has your lender made the cut? Take advantage of when lenders start dropping their rates, we can help organise your refinancing or a pre-approval!