Banks make it "unnecessarily difficult and costly" for borrowers to compare home loans, says ACCC

author-avatar By on April 28, 2020
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Banks make it

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Australia's consumer watchdog says the big four banks have made it "unnecessarily" difficult for borrowers to compare home loans, and it could be costing customers up to $5,000.

The Australian Competition and Consumer Commission's (ACCC) Home Loan Price Inquiry Interim Report has found that a lack of price transparency by the big four banks has made it "unnecessarily difficult and costly" for borrowers to find the cheapest home loan rates.

According to the report, the headline (advertised) interest rate doesn't accurately reflect the interest rate most big four bank customers actually paid for their home loans because an "overwhelming majority" (close to 90%) of customers received discounts, including under the radar discounts of between 121 and 131 basis points. 

The report calculated that a customer with an owner-occupier mortgage of $386,000 making principal and interest (P&I) repayments could save $5,000 on interest payments in the first year if they went from having no discount to receiving the big four banks' average discount of 128 basis points.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of September 25, 2021. View disclaimer.

ACCC chairman Rod Sims blamed a lack of transparency in home loan pricing practices for making it hard for borrowers to compare home loans.

“Given the economic disruption, uncertainty and job losses stemming from the COVID-19 pandemic, many consumers may not be inclined to shop around and ask for discounts from their banks right now,” Mr Sims said.

“However, our analysis shows how that even a small further reduction in interest rates could potentially save thousands of dollars over the life of a mortgage.

"Consumers should consider this carefully when it is time to re-engage with their lender.”

The report also found that most customers with a packaged home loan paid an interest rate below the lowest advertised rate, while investor loans with interest-only (IO) repayments received a larger discount than an owner-occupier loan with P&I repayments.

The report noted there were signs of oligopoly behaviour and a "lack of vigorous price competition among the big four banks" which were more accommodative and focused on each other and gave little regard to smaller lenders when setting variable interest rates.

"Comparatively, other banks employed a more diverse approach to pricing," the report said.

Mortgage loyalty will cost you

The ACCC's report found that as of September 2019, customers with new owner-occupier loans making P&I repayments were paying an average of 26 basis points less than customers with existing home loans.

For customers with older loans, that figure nearly doubled. Borrowers with a loan five years old were paying an average of 40 basis points above what big four bank customers with new loans were paying.

The report calculated that for a loan size of $200,000, a customer could have saved $850 in interest repayments in the first year if they had refinanced to obtain a new loan rate.

The report urged borrowers to ask for a better rate.

"Even a small reduction in interest rates can potentially save a consumer thousands of dollars over the life of their loan," the report said.

"Customers with existing home loans should review their loan on a regular basis, and ask their lender for a better deal.

"Some customers with an existing loan may need to switch to another home loan product with their lender, or switch to another lender, to get the best deal available to them."

The report said the Consumer Data Right (CDR) - commonly referred to as open banking - will help borrowers compare and switch between home loan products and lenders, bringing more transparency to home loan prices.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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