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4 key findings from the ACCC’s residential mortgage report and what they mean for homebuyers

Posted: 11 April 2018 3:08 pm
News

Cover of the ACCC report.

The Big Four's mortgage pricing is opaque, making it hard for consumers to properly compare rates, ACCC says.

The Australian Competition and Consumer Commission (ACCC) has been conducting an inquiry into the mortgage pricing decisions of Australia's big banks. Findings from the commission's interim report suggest that consumers need to look closely at rates offered by the major lenders to determine what discounts really mean and to look beyond basic home loans when shopping around.

Background to the inquiry

Australia's "Big Four" banks are under scrutiny, and the treasury has tasked the ACCC with investigating how these lenders price their residential mortgages. The ACCC has compulsory information gathering powers, meaning it can obtain an enormous amount of documents and data from the banks. Commonwealth Bank, Westpac, ANZ and NAB collectively hold around 75% of Australia's residential mortgages.

The interim report will be followed up by a final report in June.

To save you time, we've read through the Residential mortgage price inquiry interim report and pulled out the key findings for Australian mortgage holders and future mortgage holders.

1. It's hard for borrowers to really compare mortgages

The big banks offer discounts on their headline interest rates, often as large as 78-139 basis points.

But these discounts are not always easily discoverable for customers and are often determined by opaque criteria, including risk profile, the borrower's location and the bank's own appetite for new business.

A borrower may not be able to discover the discounts they're eligible for until they actually lodge an application. This makes it hard for consumers to make accurate comparisons because of the time and effort involved in an application, and the fact that mortgage applications often occur as a final step once a borrower is ready to buy a home.

2. Basic home loans aren't always the cheapest ones

Budget or basic "no frills" home loans are popular mortgage products. They're typically standard variable rates with fewer features like offset accounts. They're often marketed as the cheapest, entry-level products for new homebuyers.

But for existing borrowers, discounts mean that, in practice, the rates for standard variable loans often work out cheaper than the basic loans.

3. But new borrowers overall are paying less than existing borrowers

Discounts for new borrowers have increased in recent years, and existing borrowers are the ones missing out. The ACCC has estimated that existing borrowers are paying up to 32 basis points more on their interest rate than new borrowers.

A difference of 32 basis points on a $500,000 home loan over 30 years represents almost $1,000 a year in repayments.

4. Pricing between the big banks is not all that competitive

In news that probably won't shock anyone, the ACCC has found "a lack of vigorous price competition" between the big banks.

Interest rate decisions are based around strategic considerations of what the other big banks are doing, with little concern for the decisions of smaller lenders.

What does this mean for consumers?

The ACCC's report is a helpful reminder that the ordinary Aussie homebuyer needs to really do their home-loan homework.

While it can be convenient to stick with a big bank (and most of us do), there are more than 100 smaller lenders out there and they often have lower rates.

And if you are getting a mortgage with a major bank (and there are plenty of good reasons to do so), don't accept the lowest rate at face value. Dig into the details, do your repayment calculations and shop around. And it never hurts to try and negotiate a discount.

Perhaps the biggest message from the report is for existing borrowers. If you're a few years into your mortgage, you've missed out on some big discounts on rates. Ask your lender to switch you to their lowest rate for new borrowers. And if they can't, or won't, compare your options and refinance.

Compare refinance home loans today

Data indicated here is updated regularly
$
% p.a.
Offset account
Split account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Maximum Insured LVR Amount Saved Short Description
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.64%
2.66%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback.
A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get up $4,000 cashback for their first application (Other terms, conditions and exclusions apply).
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
2.49%
2.49%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
2.39%
2.39%
$0
$0 p.a.
60%
A very low variable rate for home buyers with 40% deposits or equity. This rate takes effect from 30 September for new and existing customers. You can get this rate if you apply today.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR ≤ 80% (Owner Occupier, P&I)
2.68%
2.69%
$0
$0 p.a.
80%
$2,000 to $3,000 refinance cashback.
Get a competitive variable interest rate with no application fee or ongoing fees. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.
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Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

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