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

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on April 28, 2020
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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%
FixedMore details
NO UPFRONT OR ONGOING FEES

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

NO UPFRONT OR ONGOING FEES
FixedMore details
  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

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. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of January 21, 2022. 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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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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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