Banks should regularly prompt borrowers with older loans to review their interest rates and think about switching lenders, the competition watchdog says.
Homeowners could save $34,000 over the life of a $500,000 home loan by switching lenders, Australia’s consumer watchdog says.
A new report from the Australian Competition and Consumer Commission published on Saturday finds people with older home loans are generally paying significantly higher rates than those who’ve borrowed more recently.
In September, borrowers with mortgages between three and five years old paid on average about 58 basis points more than the average rate for new loans.
That gap increases the older loans get: borrowers with loans more than a decade old were paying out 104 basis points more than new borrowers on average.
Many people could save on their mortgage by asking for a better rate or switching banks, the competition watchdog says.
If a borrower with a $500,000 loan switched to a rate 58 basis points lower than their existing loan, they would save $2,800 in interest in the first year and $34,000 over the remaining term of the loan, the ACCC says.
The ACCC wants banks to be forced to regularly remind borrowers whose loans are more than three years old to review their interest rate and consider the benefits of switching products or lenders.
ACCC chair Rod Sims said in a statement a significant number of Australians have not switched lenders for several years but could save “so much money” by doing so.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort,” Sims said.
“Our recommended prompt would clearly set out for many borrowers just how much higher their interest rate is compared to new borrowers,” Sims said. “This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender.
“It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector,” he said.
The ACCC also wants it to be as easy as possible to switch lenders.
The report is the final stage of the ACCC’s home loan prices inquiry, which was run since October 2019.
An earlier interim report raised concerns about price transparency in the home loan market. It found headline interest rates do not reflect the actual interest rates paid by borrowers because of banks’ use of opaque discretionary discounts.
Two of the big four banks have since reduced or are considering reducing their reliance on these discretionary discounts. The ACCC says it will continue to monitor the issue.