The Australian Competition and Consumer Commission (ACCC) has found Australians with home loans would save more and be better off by switching to new lenders or negotiating a new loan with lower interest rates.
In a newly released report, the ACCC is urging mortgage holders to check the market regularly for thousands of dollars worth of savings after the report found that there was a phenomenon of older loans costing more than newer ones.
ACCC Chair Rod Sims said borrowers who don’t shop around and take action are missing out on significant savings.
“If you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates,” he said in a statement on Dec 5.
According to statistics, loans over ten years are charged on average around 104 points higher than the average rate for new loans.
For loans between three and five years old, such gap is about 58 points. This could translate to a saving of over $17,000 over the life of a $250,000 loan, or over $34,000 for the duration of a $500,000 home loan.
To encourage more borrowers to check the market regularly for the best deal, the ACCC is proposing four recommendations. Included in the four is requiring lenders to give an annual reminder to customers with a variable rate loan older than three years, updating on how their interest rate compares to the average paid for new loans.
The second and third recommendations focus on streamlining the discharging process, including introducing a standardised discharge authority form that is easy to access, fill out and submit; and implementing a maximum time limit of 10 business days for lenders to complete the discharge process.
ACCC also highlights the necessity of an ongoing monitor of the pricing practice in the home loan market. While the report notes a shift towards transparency among lenders through competitive pressure, it proposes regulatory intervention if momentum towards price transparency stalls.
Treasurer Josh Frydenberg said the government would respond to the recommendations in due course, in line with its commitment to an agenda of reform that “empower consumers to more easily compare and switch between home loan products and lenders”.
“The findings underscore the government’s continued commitment to a number of major reforms to increase competition across the banking industry,” he said in a statement on Dec 5.
The inquiry released its interim report in April after finding that comparisons between home loan options are not straightforward for customers.
Predominantly this is because headline variable mortgage interest rates are not an accurate indicator of the interest rates customers pay due to the discounts offered by banks.
According to the report, as of 31 October 2019, 89 percent of variable rate home loans with the big four banks in Australia received a discount off the bank’s relevant headline variable rate. While 59 percent of lenders were charged at least 90 basis points less than the relevant headline variable rate