In the final report from its Home Loan Price Inquiry, the Australian Competition and Consumer Commission (ACCC) put forward several key recommendations geared towards encouraging borrowers to “engage with the home loan market” – and making it easier for them to do so.
It was in October 2019 that the ACCC began its investigation into home loan pricing to better understand the current practices in play and to ascertain how the process could be made more transparent.
By April 2020, an interim report was released which made it clear new borrowers were paying less on average than existing borrowers, and headline variable mortgage interest rates were not an accurate indicator of what customers were actually paying due to the discounts often offered by lenders.
Off the back of these discoveries, the final report delved into how borrowers stand to save by actively seeking a lower interest rate from their existing lender or switching to a new lender altogether. To encourage more Australians to take such action, the ACCC recommended lenders be required to “regularly prompt” borrowers with loans older than three years to review their current interest rate and to consider the potential benefits of switching products or providers.
ACCC Chair Rod Sims explained that the recommended prompt would “clearly set out for many borrowers just how much higher their interest rate is compared to new borrowers” with the design and presentation of the reminder formulated during consumer trials and testing.
“This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender. It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector,” Sims added.
“A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so.”
The ACCC found many borrowers could save as much as tens of thousands of dollars by switching lenders or products or asking for a better deal, amounting to savings of more than $17,000 over the life of a $250,000 loan for borrowers who takes the plunge and switch early in their home loan process, or even as much as $34,000 saved on a $500,000 loan.
The final report also found that borrowers with loans more than 10 years old are, on average, paying about 104 basis points more than the average interest rate paid for new loans.
As such, the ACCC has recommended lenders be required to provide a standardised Discharge Authority form to borrowers to make it easier for them to switch providers – one which should be easy to access, fill out and submit. Further, the ACCC has suggested a time limit of 10 business days be imposed on lenders to complete the discharge authority process.
“Existing lenders want to keep their borrowers, so they have no incentive to make the discharge process quick or straightforward,” Sims said.
“We want it to be as easy as possible for borrowers to switch lenders, as it should be in all markets. Our recommendations are designed to make this process faster, less confusing and less frustrating.”
Given the “significance of home loan prices to household budgets”, the ACCC also recommended home loan prices and competition in the home loan market continues to be monitored, with the ongoing regulatory involvement “needed to continue to provide transparency on lenders’ pricing practices to consumers and the Australian Government”.
