Home loan customers have potentially missed out on saving hundreds of dollars a year on their mortgage repayments to Australia’s biggest banks, while those same institutions have reaped over $1 billion thanks to new regulations.
These are the key findings of a report by the competition watchdog following its latest inquiry into Australia’s big four banks and Macquarie Bank.
The Australian Competition and Consumer Commission criticised the banks for making it hard for home loan customers to work out the best mortgage deal due to their “opaque” pricing strategies, which the watchdog says stifles competition
It found that as at June 30 this year, an existing borrower with an average-sized mortgage could initially save up to $850 a year – and potentially even more – in interest payments if they negotiated with the big banks to pay the same rate they offered to new borrowers.
ACCC chairman Rod Simms said while media coverage of the banking royal commission, the Productivity Commission’s inquiry into the financial services sector and the ACCC’s own investigation had prompted some customers to ask banks for a better rate, many were missing out.
Only about 11 per cent of borrowers with variable rate mortgages had their rates reduced by one of the big five banks in the year to June 30.
“I encourage more people to ask their lender whether they are getting the lowest possible interest rates for their residential mortgage and, as they do so, be ready to threaten to switch to another lender,” Mr Sims said on Tuesday.
“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate.”
The ACCC inquiry was prompted by the federal government’s call to investigate the responses by the Commonwealth Bank, ANZ, National Australia Bank, Westpac and Macquarie to a $6 billion banking levy introduced in the May 2017 budget.
While the ACCC found no evidence they recovered the costs of the levy via charges on home loan customers in the year to June 30, it discovered the “oligopolistic nature of banking” allowed them to boost revenues thanks to a new regulation designed to take heat out of the housing market.
The banks reaped over $1.1 billion from hiking interest-only mortgages rates after the Australian Prudential Regulation Authority told lenders in March 2017 to limit growth in higher risk interest-only loans to 30 per cent of new residential mortgages.
The new regulatory cap allowed the big four banks to seize the opportunity to “synchronise” rate hikes for customers with interest-only mortgages, with ANZ the first to lift in June 2017 before the other three quickly followed.
The ACCC estimates that while the rate hikes swelled bank revenues for the 2018 financial year, people with average-sized, interest-only owner-occupier standard variable home loans had to fork out an extra $1300 in interest.
Treasurer Josh Frydenberg said the ACCC’s findings reinforced the government’s reforms to improve competition in the banking sector and outcomes for customers.