The Australian Competition and Consumer Commission (ACCC) Home loan price inquiry interim report focuses on findings about the pricing of the big four banks’ home loans during the period 1 January 2019 to 31 October 2019. A key driver for the production of the report is lack of price transparency by these banks for the variable rates delivered that makes it difficult for consumers to compare home loans.
Brokers have for years been familiar with the gap between the major banks headline rates and request pricing discounts on every loan.
The report noted:
- This discount typically ranged between 123 to 131 basis points and could be as high as 150 basis points.
- This discount could result in interest savings of nearly $5,000 in the first year alone for an average sized new loan of $386,000.
- Customers with existing loans continue, on average, to pay higher interest rates than new loan customers.
By refinancing to a new loan or lender, customers with an existing loan become customers with a new loan, and may benefit from the larger discounts that may not otherwise be available on an existing loan.
For borrowers that have been with their bank for more than five years, they on average pay 0.40 of a percentage point more than a new customer.
The ACCC Chairman Rod Sims encouraged borrowers to seek out a better deal for their home loan:
“It is worth ringing up your bank every year to get a better deal and it’s worth threatening to move or moving to another lender.”
“The longer you stay with the bank, the more you pay,” Mr Sims said. “For every $200,000 on your loan that 40 basis points is worth $850 a year so it really matters.”
“I’m not saying banks are doing anything wrong, but if you’re loyal to your bank you’re paying more than you need to.”
Mortgage broker customers are clear winners in home loan pricing.
Buyers Choice CEO Brett Mansfield recommends that mortgage borrowers should contact their mortgage broker:
“Speak with your mortgage broker about their loan review services and the steps they take to regularly contact banks on their client’s behalf to ensure the deepest interest rate discount is applied.”
The final report is scheduled to be provided to the Treasurer by 30 September 2020. It will examine impediments to home loan customers switching between lenders.