3 quick takeaways from the ACCC interim report on home loan pricing
27 Apr 2020
The Australian Competition and Consumer Commission (ACCC) has this afternoon released an interim report into home loan pricing by Australia’s big four banks.
In late 2019, the ACCC was tasked by the Federal Treasurer, Josh Frydenberg, to launch an inquiry into the home loan market with a specific focus on the price differences paid between new and existing customers and the reaction of lenders to Reserve Bank interest rate cuts.
The Home Loan Price Inquiry interim report focused on Australia’s big four banks which account for the majority (around 80%) of the home loan market share, taking into account home loan prices between January 2019 and October 2019.
Here are some of the major takeaways of the report:
Profitability is - surprise, surprise - a ‘key consideration’ for banks
It won’t come as a surprise, but the ACCC’s interim report has suggested that banks placed a high priority on ensuring their profitability. Perhaps at the expense of not passing on recent RBA rate cuts on in full to their mortgage customers.
According to ACCC Chair, Rod Sims, the big banks have been trying to “shore up” their profitability, but in a low rate environment where their savings account rates have moved close to zero, that has meant not always passing on cuts to borrowers in full.
“It was their strong preference, after the RBA’s cuts, not to further reduce the rates customers were earning on some deposit products as they approached zero per cent,” he said in a statement released this afternoon.
“The banks’ reluctance to cut these deposit rates led them to anticipate lower profits, which they aimed to recover by not always fully passing through cash rate cuts to their mortgage customers.”
There’s a big old gap between headline and discounted rates
If you’re not getting a discounted rate on your home loan, you’re missing out.
That was another one of the key takeaways from the interim report, with the ACCC finding an average gap of 123 to 131 basis points - depending on the bank - between the average owner occupier rate (principal and interest repayments) and the variable headline rate.
According to the interim report, 89% of home loan customers with the big four banks were receiving at least some kind of discount on their mortgage, while 11% remained on the higher headline rate.
Meanwhile, around 13% of customers were getting a discount of 150 basis points or more (as of October, 2019).
Loyalty doesn’t pay
It’s the age old question and the ACCC interim report has a pretty clear answer: no.
The report found that (as of September 2019), new customers had a home loan with a rate 26 basis points lower on average than customers with an existing home loan.
The figure rose in line with customer loyalty, given that customers with a loan five years old were found to be paying an average of 40 basis points above what a new customer with one of the big four banks was paying.
As a result, the ACCC has encouraged mortgage customers to shop around because, as Rod Sims suggests, even a small interest rate reduction could make a substantial difference.
“Given the economic disruption, uncertainty and job losses stemming from the COVID-19 pandemic, many consumers may not be inclined to shop around and ask for discounts from their banks right now.”
“However, our analysis shows how that even a small further reduction in interest rates could potentially save thousands of dollars over the life of a mortgage. Consumers should consider this carefully when it is time to re-engage with their lender.”
RELATED: Reluctance to haggle could cost Aussies $6k in household expenses, Mozo research finds
The final report is scheduled to be released later on in the year and will delve into more detail about some impediments Australian customers face when it comes to refinancing their home loans or switching to a different lender.
In the meantime, if switching is on your mind check out our refinancing tips and tricks, or head on over to the Mozo home loan comparison hub to check out up to date rates from a range of lenders.
Home loans 2020 - rates updated daily
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Promoted
Macquarie2.54% p.a. variable
2.81% p.a.
$1234
Product details Close detailsMacquarieOffset Home Loan Package
Owner Occupier, LVR<70%, Principal & Interest
2.54% p.a. variable
2.81% p.a.
Handy offset account to help pay your home loan off sooner. Up to 10 offset accounts per loan account available. Fee free access at ATMs. Waived credit card annual fee. $0 international purchase fees.
Offset Home Loan Package
Handy offset account to help pay your home loan off sooner. Up to 10 offset accounts per loan account available. Fee free access at ATMs. Waived credit card annual fee. $0 international purchase fees.
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2.54% p.a. variable
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2.81% p.a.
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$0
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$248.00 yearly
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$400.00
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yes - free
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yes - free
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yes
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$0
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70.00%
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$150,000
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$5,000,000
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Variable
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Principal & Interest
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Owner Occupier
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Monthly
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Read our Mozo Review to learn more about the Offset Home Loan
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Promoted
loans.com.au
2.48% p.a. variable
2.50% p.a.
$1234
Product details Close detailsloans.com.au Smart Home Loan 80
Owner Occupier, Principal & Interest
2.48% p.a. variable
2.50% p.a.
A low-rate home loan that could save you thousands, with no ongoing fees plus unlimited extra repayments and free redraws. Mozo Experts Choice Low Cost Home Loan 2020.^ You'll need to be borrowing $1 million or less and have at least a 20% deposit required.
Smart Home Loan 80
A low-rate home loan that could save you thousands, with no ongoing fees plus unlimited extra repayments and free redraws. Mozo Experts Choice Low Cost Home Loan 2020.^ You'll need to be borrowing $1 million or less and have at least a 20% deposit required.
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2.48% p.a. variable
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2.50% p.a.
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$520
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$0.00
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$0.00
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yes - free
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yes - free
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Optional - with 0.10% additional interest
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$520
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80.00%
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$50,000
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$1,000,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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Read our Mozo Review to learn more about the Smart Home Loan 80
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Promoted
HSBC 2.09% p.a.
fixed 2 years2.98% p.a.
$1234
Product details Close detailsHSBC Fixed Rate Home Loan
Owner Occupier, Principal & Interest, LVR <80%
2.09% p.a.
fixed 2 years2.98% p.a.
Have the security of a fixed rate for 2 years with the option to split with one of the HSBC variable Home Loans. No ongoing monthly service fees or annual fees. Mozo Experts Choice Fixed Home Loan 2020^
Fixed Rate Home Loan
Have the security of a fixed rate for 2 years with the option to split with one of the HSBC variable Home Loans. No ongoing monthly service fees or annual fees. Mozo Experts Choice Fixed Home Loan 2020^
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2.09% p.a.
fixed 2 years -
2.98% p.a.
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$0
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$0.00
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$300.00
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yes - free up to $10,000 p.a.
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no
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no
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$0
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80.00%
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$50,000
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$7,500,000
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Fixed
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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Read our Mozo Review to learn more about the Fixed Rate Home Loan
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Promoted
Athena 2.34% p.a. variable
2.34% p.a.
$1234
Product details Close detailsAthena Celebrate Variable Home Loan
<60% LVR, Owner Occupier, Principal & Interest
2.34% p.a. variable
2.34% p.a.
Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.^
Celebrate Variable Home Loan
Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.^
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2.34% p.a. variable
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2.34% p.a.
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$0
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$0.00
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$0.00
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yes - free
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yes - free
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no
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$0
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60.00%
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$100,000
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$2,000,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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Read our Mozo Review to learn more about the Celebrate Variable Home Loan
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Promoted
Hot Deal Up to $1,500 cash back on refinances (T&Cs apply)
Homestar 2.29% p.a. variable
2.32% p.a.
$1234
Product details Close detailsHomestar Star Essentials Home Loan
Owner Occupier, Principal & Interest
2.29% p.a. variable
2.32% p.a.
Low Cost Home Loan 2020 winner.^ A home loan packed with all the essentials and offering up to $1500 cashback and no ongoing fees. No Construction loans.
Star Essentials Home Loan
Low Cost Home Loan 2020 winner.^ A home loan packed with all the essentials and offering up to $1500 cashback and no ongoing fees. No Construction loans.
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2.29% p.a. variable
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2.32% p.a.
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$515
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$0.00
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$535.00
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yes - free
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yes - free
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no
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$515
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80.00%
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$150,000
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$850,000
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Variable
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Principal & Interest
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Owner Occupier
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Weekly, Fortnightly, Monthly
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Refinances receive up to $1,500 cashback or upfront fees waived on purchases for applications received by 31 October 2020 and settled by 31 January 2021.
Read our Mozo Review to learn more about the Star Essentials Home Loan
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