Existing borrowers could pay tens of thousands of dollars more – By ACCC
- December 12, 2018
- Home loans, mortgages and property investments, Personal finance
- Posted by Trevor Epps
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An inquiry found by ACCC that the negative attention on the banks from the Royal Commission, the Productivity Commission’s inquiry into competition in the financial system and the ACCC’s Interim Report on residential mortgage prices had prompted some borrowers to review the prices they were paying for their residential mortgages.
For example, in the quarter ending 30 June 2017, 88,000 residential mortgages received a price reduction, while in the final quarter of the monitoring period (ending 30 June 2018), just over 144,000 residential mortgages received a price reduction.
In all, about 11 per cent of borrowers with variable rate mortgages had the price of their current residential mortgage reduced by one of the five banks under review in the year to 30 June 2018.
Despite this, the rate of borrowers switching lenders remained low; less than 4 per cent of variable rate residential mortgages with the Inquiry Banks’ main brands refinanced to another lender in year to 30 June 2018.
Further, the ACCC found that new borrowers were often given higher discounts than existing borrowers, with the average new borrower achieving a discount of up to 32 basis points, as at 30 June 2018.
“An existing borrower with an average-sized residential mortgage who negotiated to pay the same interest rate as the average new borrower from 30 June 2018 could initially save up to $850 a year in interest (depending on the category of residential mortgage).
“For existing borrowers with a larger than average residential mortgage, the savings from a 32 basis point reduction in the interest rate they pay could add up to tens of thousands of dollars over the full term of their residential mortgage in net present value terms,” the report reads.
Calls for borrowers to ask for discount, new pricing calculator to be launched
“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 therefore commented.
“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate.”
Speaking following the release of the report, Treasurer Josh Frydenberg noted that the report backs the recommendation from the Productivity Commission’s inquiry into Competition in the Australian Financial System, which called for the development of an online calculator that reports on actual interest rates paid and discounts received by different types of borrowers.
“The government strongly supports the objective of this recommendation and has asked the Council of Financial Regulators to accelerate the development of options for its implementation,” he said.
“Improving customer outcomes and increasing competition in the banking sector is part of the coalition’s plan for a stronger economy.”
Mr Frydenberg continued: “[T]he ACCC’s findings add further weight to the important actions the Coalition Government is taking to improve competition and transparency in the residential mortgage market.
“Our Open Banking reforms will revolutionise the ability of consumers to shop around for a better deal. By giving individuals access to personal data currently held by their bank, they will be able to better compare prices and switch between products and providers.”
While the ACCC has not made any sweeping recommendations to government, it has noted that the new Consumer Data Right will, among other things make it much easier for consumers to compare available interest rates.
“The ACCC looks, in particular, to the Consumer Data Right to empower consumers in their dealings with banks,” ACCC chair Mr Sims said.