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Mortgage lending review in brief

In their press release earlier this week, the Australian Competition and Consumer Commission (ACCC) indicated that a new inquiry into home loan pricing will expand on the 2017 inquiry conducted by the ACCC into residential mortgage products.

In 2017, the regulator was directed by the Government to review the pricing of residential mortgage products. The inquiry covered the period between 9 May 2017 and 30 June 2018. The final 84-page report was made public in 11 December 2018, and focused specifically on the ‘big four’ banks, including Macquarie Bank.

The inquiry looked directly at interest rate changes by banks that were said not to be in the best interests of consumers.

At the report’s launch, the ACCC stated that opaque discretionary spending makes it hard for the borrower.

They highlighted the positive impact expected of the Consumer Data Right, when it comes, on the banks:

The ACCC also compared the approach to pricing of a sample of seven banks that were not subject to the Inquiry. Three of these banks were particularly focussed on competing on price, and therefore have lower rates. Some of the banks in our sample rely heavily on brokers and aggregators to gain market share. The ACCC notes that these banks, and other lenders in a similar position, are likely to be more vulnerable to future regulatory changes that affect the use of brokers as a distribution channel.

“The ACCC looks, in particular, to the Consumer Data Right to empower consumers in their dealings with banks,” ACCC Chairman Rod Sims said.

In brief, the findings of the 2017 report were that:

  • Opaque discretionary pricing causes inefficiency and stifles price competition

  • New borrowers pay lower interest rates than exiting borrowers on average

  • APRA interest-only benchmark created a focal point for rate increases

  • Media releases announcing interest rate changes don’t always tell the full story

  • Other banks had more variable pricing options compared to the Big 4

  • Regulatory requirements exacerbated challenges faced by other banks

  • There were no changes in residential mortgage prices specifically to recover the costs of the Major Bank Levy

After laying out the findings, the report also highlighted the following, for borrowers wanting a better deal:

  • Ask their current lender for better interest rates

  • Switch to cheaper product at the same lender

  • Switch lenders

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©2018-2019 by The GRC Institute - Governance, Risk & Compliance.  ABN: 42862119377