Frustrating bank habit triggers probe into home loan pricing

You know that infuriating habit the big banks have of failing to pass on the RBA’s cash rate cuts in full? Well, it’s finally triggered the federal government to order an inquiry into home loan pricing.

The inquiry, which is being conducted by the Australian Competition and Consumer Commission (ACCC), comes just weeks after the Reserve Bank of Australia (RBA) slashed the official cash rate by 25 basis points for the third time this year to a record new low of 0.75%.

What really drew the ire of the public and politicians alike, however, was that the big banks only passed on between 0.13% and 0.15% (out of 0.25%) of the latest RBA cut to customers.

This is after they only passed on 0.40% to 0.44% (out of 0.50%) for the previous two RBA cuts.

How much is it costing you?

Treasurer Josh Frydenberg said if the big banks had passed on the recent rate cuts in full, a family with a $400,000 mortgage would be paying around $2,200 a year less in interest payments.

That compares to the $1,680 they’re saving from the 57 basis point rate cut that they are currently getting (on average), he added.

“In other words, families would be $519 better off if the banks had passed on the rate cut in full, not just a part of it,” Treasurer Frydenberg said.

So what will the ACCC probe?

The ACCC will investigate a wide range of issues – on top of why RBA cuts aren’t always passed on in full – including the rates paid by new customers versus existing customers (in other words: the ‘loyalty tax’).

In addition, the inquiry will consider what prevents more consumers from switching to cheaper home loans.

“We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks,” ACCC Chair Rod Sims said.

“It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time-consuming application process.”

Mr Sims added the inquiry will aim to provide answers to the questions that banking customers have long asked.

“For example, there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers,” he said.

The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.

Get in touch

All in all, the ACCC inquiry is aimed at increasing transparency when it comes to how banks price their home loans.

The good news for you is that you’re not alone. If you ever have a question about your home loan that you need clarity on, all you need to do is get in touch with us. We’d be more than happy to look into it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.