'Lack of transparency' found in mortgage products
The Government has released the interim report into its investigation of home loan prices, commissioned by the Australia Competition and Consumer Commission (ACCC), focused on the pricing of residential mortgage products.
This report, which began in October, 2019, examined the pricing of residential mortgage products as well as interest rate setting decisions and mortgage prices.
The findings underlined the “importance of greater transparency and competition in the sector” and the need for customers to remain highly engaged.
It found an “overall lack of price transparency” for the standard variable interest rates (SVR) offered by major banks which made it difficult for customers to compare loans.
SVRs were found to be an inaccurate indicator of actual prices paid by customers with around 90% of customers receiving a 1.28% discount off the SVR. This represented a saving of nearly $5,000 in the first year.
New customers were found to be paying on average 26 basis points less than existing customers for owner-occupied loans, rising to 40 basis points when compared to customers who had the loan for more than five years.
The ACCC was also critical of banks for failing to reduce SVRs when their overall cost of funds came down, instead only doing so when there was a base rate cut by the Reserve Bank of Australia.
A final report was due to be published on 30 November, 2020.
At the same time, the Government has been focussed on ensuring that its actions in responding to the COVID-19 pandemic support competition, including through:
- The $15 billion in funding provided to the Australian Office of Financial Management (AOFM) to invest in wholesale funding markets used by small authorised deposit-taking institutions (ADIs) and non-ADI lenders; and
- Enabling a broad cross-section of lenders to participate in the COVID-19 SME Guarantee Scheme, with 39 lenders now approved to participate in the scheme.
AUTHOR
Laura Dew
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