Australians who have older homes loans could be missing out if they fail to shop around for a more competitive lender, the consumer watchdogs says.
Homeowners could save $34,000 over the life of a $500,000 home loan by switching lenders, according to a new report from the Australian Competition and Consumer Commission published on Saturday.
It noted people with older home loans are generally paying significantly higher rates than those who’ve borrowed more recently.
The ACCC wants banks to be forced to regularly remind borrowers whose loans are more than three years old to review their rate and consider the benefits of switching products or lenders.
ACCC chair Rod Sims said in a statement a significant number of Australians had not switched lenders for several years but could save “so much money” by doing so.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort,” he said.
“Our recommended prompt would clearly set out for many borrowers just how much higher their interest rate is compared to new borrowers.
“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.”
Speaking on Saturday, Attorney-General Christian Porter said it was “an obvious matter of concern” that newer customers were scoring better deals but he stopped short of embracing the ACCC’s recommendations.
“That is something we think should be remedied and the first way that can be done is banks offering better services to their customers,” he said.
Treasurer Josh Frydenberg was considering the report’s recommendations, he said.
The ACCC also wants it to be as easy as possible to switch lenders, by reducing research costs and shortening the unwieldy discharge process to just 10 days..
In September 2020, borrowers with mortgages between three and five years old paid on average about 58 basis points more than the average rate for new loans.
That gap increases the older loans get: borrowers with loans more than a decade old were paying out 104 basis points more than new borrowers on average.
Many people could save on their mortgage by asking for a better rate or switching banks, the competition watchdog says.
If a borrower with a $500,000 loan switched to a rate 58 basis points lower than their existing loan, they would save $2800 in interest in the first year and $34,000 over the remaining term of the loan, the ACCC says.
The report is the final stage of the ACCC’s home loan prices inquiry, which began in October 2019.
An earlier interim report raised concerns about price transparency, with headline interest rates failing to reflect actual interest rates paid by borrowers because of the banks’ use of opaque discretionary discounts.
Two of the big four have since reduced or are considering reducing their reliance on these discretionary discounts. The ACCC says it will continue to monitor the issue.