The corporate watchdog has blamed the “oligopoly” of the big banks for the absence of rate tracker mortgages in Australia.
While the media focus has dissipated, the House of Representatives economics committee is continuing its inquiry into the big four banks.
It is likely the committee will recommend that parliament force the banks to offer the tracker products, which exist overseas.
On Friday, ASIC chair Greg Medcraft told the committee a lack of competition explains why no Australian banks offer variable rate home loans that match changes to the official cash rate.
“We are in a market which is, frankly, an oligopoly,” Mr Medcraft said.
“I do believe one of the reasons we don’t have them today is because frankly we do have a lack of competition because where you do have competitive markets, whether it be in Europe, Ireland or the UK, clearly you have tracker mortgages.”
Committee chair David Coleman, a Liberal MP, made tracker mortgages a key line of questioning during the hearings in early October – a clear sign the idea is popular inside government.
Tracker rates would sit several percentage points above the Reserve Bank cash rate, and move up or down in unison. They would offer less certainty than a fixed rate (as they would still vary), but more certainty than a standard variable rate (which may or may not follow the cash rate).
ANZ boss Shayne Elliott was open to the idea, but the CEOs of the Commonwealth Bank, NAB and Westpac were worried the product would expose them to more risk, and be unpopular.
Mr Medcraft was not convinced by their arguments: “It’s a fair evolution for Australia to bring us up to the rest of the world.”
Tracker mortgages would prevent the banks from taking days or weeks to pass on rate cuts, the ASIC chairman said.
They would also boost competition between the banks, Mr Medcraft said. Currently, comparing mortgage rates is “almost impossible” because customers cannot predict whether their bank will be a better or worse deal after the next rate movement, he said.
During the earlier hearings, the bank CEOs argued that tracker rates would be unpopular because they would need to be priced higher than standard variable rates to account for risk.
The risk, they said, is that their cost of funds would rise, independent of the RBA cash rate.
The cost of selling a home loan is not solely determined by the cash rate, they said. It is influenced by other factors, such as term deposit rates paid to households, the cost of wholesale borrowing in foreign money markets (especially the US), and changes to prudential regulation.