Mortgage groups have backed brokers as the solution to banks’ lack of transparency after a report said they were stifling mortgage price competition.
The ACCC released a report yesterday after it investigated the prices charged by the five banks affected by the government’s Major Bank Levy between 9 May 2017 and 30 June 2018.
It found the banks made it difficult and time consuming for borrowers to shop around for mortgage rates.
Broker group AFG “applauded” the ACCC’s conclusions, saying it showed that competition from the smaller lenders would be threatened with changes to regulation that might affect the role of mortgage brokers.
AFG chief executive officer, David Bailey, said, “The ACCC has highlighted how important the role of mortgage brokers is in creating a market where consumers are offered the widest choice of lenders at the lowest prices.
“If Australia’s competition watchdog has concluded that the pricing of mortgages in Australia is opaque, how are consumers expected to navigate the variety of home loans without the assistance of their local mortgage broker?”
AFG pointed to the ACCC’s finding that lenders offering the best deals for consumers by competing on price rely heavily on mortgage brokers to gain market share.
The ACCC warned that these lenders, responsible for the competition in the home loan market, “are likely to be more vulnerable to future regulatory changes that affect the use of brokers as a distribution channel”.
Bailey said the ACCC’s report would be considered by policymakers in preparation for the regulatory response to the Royal Commission into Banking and Financial Services.
He added, “In a world where we have the ACCC declaring that Australia’s home loan market is lacking competition, price leadership is effectively as damaging as actual collusion.
“This is why mortgage brokers are so important. It would be unfathomable for policymakers to consider taking steps which would limit competition by impacting the very channel that has been increasingly embraced by consumers for the competition and choice the channel delivers.”
The Finance Brokers Association of Australian (FBAA) said it registered a response of ‘no surprise’ that banks were using their “oligopolistic power and pricing structures to squeeze even more profit out of borrowers”.
FBAA managing director Peter White said the report highlighted the fact it is against their interests for banks to make pricing transparent, and that’s where brokers provide the solution.
He added, “Brokers are the key to the need for greater transparency and we are able to help borrowers negotiate with their bankers.”
He also said that further evidence of the brokers’ role was highlighted in the conclusion that high search costs and the effort required by borrowers reduces their willingness to shop around.
He said, “Every month that passes when a borrower has a bad deal means more profit for the bank and less money for the borrower.
“Often borrowers get trapped in a loan that doesn’t suit their needs, but brokers have access to hundreds of different loan products and take into account individual circumstances.”
The ACCC monitored the prices charged by the five banks affected by the government’s Major Bank Levy between May 9 2017 and June 30 2018.
The big four banks gained an estimated $1.1 billion in additional revenue after taking the opportunity to increase headline variable interest rates for interest-only mortgages.
White said, “This predatory move by banks cost the average owner-occupier interest-only standard variable mortgage lender $1300 in interest in the first year.
“The ACCC stated that often it’s only a threat to leave which will force banks to give borrowers a better deal but that’s not good enough.
“The royal commission has already shown that banks have a greedy, profit first culture so why reward them by staying?”