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. Advertiser disclosure.
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Mozo experts choice awards won:
- Offset Home Loan - 2021
- Low Cost Home Loan - 2021
1.85% p.a.variable for 24 months and then 2.25% p.a. variable
2.21% p.a.
$1234
Product details Close details
Mozo experts choice awards won:
- Offset Home Loan - 2021
- Low Cost Home Loan - 2021
Smart Booster Home Loan
2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
1.85% p.a.variable for 24 months and then 2.25% p.a. variable
2.21% p.a.
New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.
Smart Booster Home Loan
New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.
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1.85% p.a.variable for 24 months and then 2.25% p.a. variable
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2.21% 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 Booster Home Loan
Details Close
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1.79% p.a.
fixed 1 year2.32% p.a.
$1234
Product details Close detailsUHomeLoan
Owner Occupier, Principal & Interest
1.79% p.a.
fixed 1 year2.32% p.a.
Fast, easy to apply and no ongoing fees. Choose between weekly, fortnightly or monthly repayments. 1 year fixed rates are for new Owner Occupier Principal & Interest loans.
UHomeLoan
Fast, easy to apply and no ongoing fees. Choose between weekly, fortnightly or monthly repayments. 1 year fixed rates are for new Owner Occupier Principal & Interest loans.
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1.79% p.a.
fixed 1 year -
2.32% 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 up to $20,000 during fixed rate term
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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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$100,000
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$2,000,000
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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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$395 Establishment fee waived for fixed rate loans that settle by 30 September 2021.
Read our Mozo Review to learn more about the UHomeLoan
Details Close
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2.09% p.a.
fixed 3 years2.32% p.a.
$1234
Product details Close detailsBasic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR<70%
2.09% p.a.
fixed 3 years2.32% p.a.
No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.
Basic Home Loan
No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.
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2.09% p.a.
fixed 3 years -
2.32% p.a.
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$0
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$0.00
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$400.00
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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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70.00%
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$150,000
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$750,000
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Fixed
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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 Basic Home Loan
Details Close
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Mozo experts choice awards won:
- Home Loan Innovation - 2021
- Investor Home Loan - 2021
- Low Cost Home Loan - 2021
1.99% p.a. variable
1.99% p.a.
$1234
Product details Close details Mozo experts choice awards won:
- Home Loan Innovation - 2021
- Investor Home Loan - 2021
- Low Cost Home Loan - 2021
Celebrate Variable Home Loan
<60% LVR, Owner Occupier, Principal & Interest
1.99% p.a. variable
1.99% p.a.
Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.
Celebrate Variable Home Loan
Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.
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1.99% p.a. variable
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1.99% p.a.
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$0
-
$0.00
-
$0.00
-
yes - free
-
yes - free
-
no
-
$0
-
60.00%
-
$100,000
-
$2,000,000
-
Variable
-
Principal & Interest
-
Owner Occupier
-
Weekly, Fortnightly, Monthly
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Read our Mozo Review to learn more about the Celebrate Variable Home Loan
Details Close
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1.99% p.a. variable
1.99% p.a.
$1234
Product details Close detailsVariable Home Loan
Owner Occupier, Principal & Interest
1.99% p.a. variable
1.99% p.a.
Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Comes with Visa debit card and the ability to use digital wallets; Apple and Google Pay. 25% deposit required.
Variable Home Loan
Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Comes with Visa debit card and the ability to use digital wallets; Apple and Google Pay. 25% deposit required.
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1.99% p.a. variable
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1.99% p.a.
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$0
-
$0.00
-
$0.00
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yes - free
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yes - free
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yes - offset sub account
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$0
-
75.00%
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$100,000
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$2,500,000
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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 Variable Home Loan
Details Close
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