Former ACCC Chair urges borrowers to consider non-bank lenders

Emma Duffy By on October 15, 2019
 
graeme samuel

Image: Former ACCC Chair Graeme Samuel (Source: Twitter)

If you’re wondering why your bank hasn’t passed on interest rate cuts in full, former ACCC Chair Graeme Samuel says fed up borrowers should take their business to smaller lenders.

“If you can get a lower rate from borrowing from a non-bank financial institution, why wouldn’t you do it? Their money is as good as any of the big four banks,” Mr Samuel told ABC’s 7:30.

Mr Samuel’s comments come after Treasurer Josh Frydenberg called for the Australian Competition and Consumer Commission (ACCC) to investigate whether anti-competitive practices are keeping bank customers from the cheapest mortgages, sparked after the big four failed to pass on the full rate cut to customers.

This year, the Reserve Bank has cut official interest rates by 75 basis points but the big four have only passed on an average of 57, pocketing a quarter of the benefit.

According to Mr Frydenberg, this has boosted the big bank’s revenue by half a billion dollars and short-changed anyone with a new mortgage more than $500 a year.

“The failure of the banks to pass on the recent rate cuts to their customers when their cost of funds has come down significantly, leaves them exposed to the charge that they are putting their profits before their customers,” Mr Frydenberg said.

Mr Frydenberg hasn’t been shy in venting his frustration towards the big four in recent weeks, saying they are “ignoring the RBA” and “have a lot of explaining to do”.

ACCC Chair Rod Sims told 7:30 there are “barriers in terms of some of the processes you have to go through switching from one bank to the other” but Mr Samuel said comparison sites have made it easier to shop around.

“The biggest impediment is inertia and apathy on the part of their customers,” Mr Samuels added.

Mr Samuels said the global financial crisis nearly destroyed smaller lenders, but they’re back with a vengeance and worth considering.

“They have gradually rebuilt and re-energised and, of course, they (borrowers) should borrow from them,” Mr Samuels said.

Last month, My Frydenberg praised some of the smaller lenders for passing on the rate cut in full.

Savings.com.au’s October rate cut tracker shows at least three lenders passed on the full rate cut.

First out of the gates was Athena, followed by Homestar Finance and UBank (which is owned by NAB. Notably, Athena and Homestar Finance are non-bank lenders.

The most recent cash rate cut in October has seen many lenders cut variable home loan rates by as little as 10 basis points. Many others cut their rates by around 15-20 basis points as well – not just the big four.

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Low Rate Home Loan w/Offset 2.90% 2.92% $1,665 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Low Rate Home Loan w/Offset
2.90% 2.92% $1,665
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 18 November 2019. View disclaimer.

What will the ACCC inquiry look into?

We’re all familiar with the last banking royal commission, but this new inquiry will directly focus on the residential mortgage market.

The big four won’t be the only ones probed – the inquiry will probe the entire banking industry including non-bank lenders, investigating how they work out their residential mortgage rates, why different groups of borrowers are charged different interest rates, and how and when customers are told about rate changes.

In a statement, the ACCC said it: “Will consider matters such as consumer decision-making and biases, information used by consumers and the extent to which suppliers may contribute to consumers paying more than they need to for home loans.”

“Having consumers and the community understand how pricing decisions are made, why, and with what consequences is important for a well-functioning market,” ACCC Chair Rod Sims said.

“We will aim to provide answers to the questions that banking customers have long asked. For example, we know from our first financial services inquiry that there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers. It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time-consuming application process,” Mr Sims said.

“We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks.”

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 2018. They are (in descending order): Credit Union Australia, 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 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers’ products may not be available in all states.

In the interests of full disclosure, Savings.com.au 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 includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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Emma Duffy
Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.
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