Australia’s premier consumer watchdog has today released a scathing assessment of the way some of the country’s largest banks ‘stifle’ price competition in the home loan market, to the detriment of their customers.
The Residential Mortgage Price Inquiry Report, released by the Australian Competition and Consumer Commission (ACCC), found that a lack of transparency in home loan pricing from ANZ, Commonwealth Bank, Macquarie Bank, NAB and Westpac makes it difficult for borrowers to know how their rates compare.
This then reduces the willingness of many borrowers to shop around for a better deal.
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“Pricing for mortgages is opaque and the big four banks have a lot of discretion. The banks profit from this and it is against their interests to make pricing transparent,” said ACCC Chair, Rod Sims.
The ACCC report found that while one of the most successful ways borrowers can go about reducing their home loan rate is by negotiating with their banks, many don’t realise that this is an option - particularly refinancers, those borrowers looking for a better deal on their existing mortgage.
According to the report, borrowers with an average-sized mortgage could save up to $850 a year (initially) by negotiating to pay the same interest rate as the average new borrower at one of the major banks above.
“I encourage more people to ask their lender whether they are getting the lowest possible interest rates for their residential mortgage and, as they do so, be ready to threaten to switch to another lender,” said Sims.
“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate.”
Weighing up the rewards of switching
For mortgage holders who are are existing customers of a major bank, negotiating to a better deal is one thing, but how much could you save by switching providers altogether?
Mozo crunched the numbers and found that an owner-occupier borrower with a $400,000, 30 year home loan and an LVR of 80% would pay $24,552 a year on the average big four package rate of 4.58%.
The same borrower would pay $23,844 a year ($708 saved) on the average variable rate currently in the Mozo database of 4.33%, or just $21,396 a year ($3,156 saved) on the lowest variable rate currently in the Mozo database which is 3.44% (comparison rate: 3.51%).
According to Mozo Product Data Manager, Peter Marshall, one of the other hurdles holding many potential refinancers back is the time and effort involved.
“I don’t know anyone who loves dealing with paperwork, and the initial loan application process requires quite a lot of it. But when you’re refinancing you don’t actually have to wade through quite as much,” he said.
“At the end of the day you really just have to weigh up whether putting in a couple of hours of work is worth saving hundreds, if not thousands of dollars. It seems like a no-brainer.”
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Weighing up refinancing your own home loan? Check out some of the great offers below, or head over to the Mozo home loan comparison hub for even more refinancing deals.