The Australian Competition
and Consumer Commission (ACCC) kicked off its investigation into home loan
pricing back in October 2019, and has to date closely examined a wide range of
pricing information using its "compulsory information-gathering powers” to
obtain documents from the big four banks.
What it uncovered and
published in its final report is that Australians with older home loans
continue to pay significantly higher interest rates than borrowers with new
home loans, potentially costing them thousands of dollars.
To encourage change, the ACCC
has now recommended that lenders be required to regularly prompt borrowers
whose loans are older than three years to review their current interest rate
and to consider the potential benefits of switching products or lenders.
"A significant number of
Australian home loan borrowers have not switched lenders for several years, yet
they stand to save so much money by doing so,” ACCC chair Rod Sims said.
"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.”
The ACCC found that, as at
September 2020, borrowers with home loans between three and five years old paid
on average, about 58 basis points more than the average interest rate paid for
Such a borrower with a home
loan of $250,000 could save more than $1,400 in interest in the first year by
switching to a loan with the lower, average interest rate paid for new loans.
Over the remaining term of
the loan, that borrower could save more than $17,000 in interest.
As loans age, the gap between
the rates paid on older loans compared with new loans widens. As such, the ACCC
found that borrowers with loans more than 10 years old were, on average, paying
about 104 basis points more than the average interest rate paid for new loans.
"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,” Mr Sims said.
To further ease the barriers
encountered by home loan borrowers looking to switch banks, the ACCC has also
recommended lenders be required to provide a standardised discharge authority
form to borrowers.
"Existing lenders want to
keep their borrowers, so have no incentive to make the discharge process quick
or straightforward,” Mr. Sims said.
"We want it to be as easy as
possible for borrowers to switch lenders, as it should be in all markets. Our
recommendations are designed to make this process faster, less confusing, and
Released in April, the ACCC’s
interim Home Loan Price Inquiry report raised concerns about a lack of
price transparency in the home loan market, as headline interest rates, which
are relied upon by consumers shopping around, often do not reflect the actual
rates paid by most borrowers.
The ACCC has noted, however,
that two of the big four banks have since reduced or are considering reducing
their reliance on discretionary discounting to improve transparency for
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Wednesday, 3 February 2021