“Less-than-vigorous” price competition in the residential mortgage market – especially between the big four banks – is proving to be a bane for both prospective and current borrowers, a recent government report has found.
The interim report by the Australian Competition & Consumer Commission (ACCC) found the “opaque” pricing of discounts among lenders. This is quite significant, because discounts are a major factor in the interest rates customers are paying. Banks offer both advertised and discretionary discounts, but the regulator said the latter are not always transparent.
The ACCC’s Residential Mortgage Price Inquiry is monitoring the prices charged by the five banks affected by the government’s major bank levy: Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA), Macquarie Bank, National Australia Bank (NAB), and Westpac.
“We do not often see the big four banks vying to offer borrowers the lowest interest rates. Their pricing behaviour seems more accommodating and consistent with maintaining current positions,” ACCC Chairman Rod Sims said.
“We have seen various references to not wanting to ‘lead the market down’, to have rates that are ‘mid-ranked’ and to ‘maintain orderly market conduct’,” he added.
According to ACCC figures from June 2015 to June 2017, the average discount across the five banks under review on variable interest rate loans was 78-139 basis points off the relevant headline interest rate.
“The discounting by the big banks lacks transparency and it’s almost impossible for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort. But the potential savings from these discounts are immense,” Sims said.
The report also found the average interest rates paid for basic loans are often higher than for standard loans at the same bank. “We think many customers who opted for ‘basic’ or ‘no frills’ loans thinking they are saving money would be surprised to learn they might actually be paying more,” Sims added.