The importance of the Coalition Government’s reforms to improve customer outcomes and increase competition in the banking sector have been reaffirmed by the Australian Competition and Consumer Commission (ACCC) inquiry into residential mortgage prices.
In May 2017, the Government directed the ACCC to inquire into prices charged or proposed to be charged by banks affected by the Major Bank Levy (ANZ, Commonwealth Bank, Macquarie Bank, National Australia Bank and Westpac) in relation to the provision of residential mortgage products.
The ACCC Residential Mortgage Price Inquiry Final Report found that there were no changes in residential mortgage prices specifically to recover the costs of the Major Bank Levy.
The ACCC also found, however, that the mortgage market was characterised by opaque discretionary pricing practices that cause inefficiency and stifle price competition. For example, new borrowers pay lower interest rates than existing borrowers – on average up to 32 basis points lower, depending on the category of residential mortgage. This could be worth up to $1000 per year for the average mortgage holder.
Additionally, the ACCC found that the major banks used APRA’s interest-only benchmark as an opportunity to increase interest rates for interest-only residential mortgages in mid-2017. The introduction of these lending controls by APRA reflected concerns within the Council of Financial Regulators that the growing number of interest-only loans was creating a heightened risk in the housing market that could impact on the wider economy.
In implementing these lending controls, APRA prioritised the stability of the housing market. Importantly, since their introduction, the Reserve Bank of Australia has determined that “the policies have meaningfully reduced vulnerabilities associated with riskier household lending and so increased the resilience of the economy to future shocks”.
While these interventions were necessary, the ACCC’s findings add further weight to the important actions the Coalition Government is taking to improve competition and transparency in the residential mortgage market. Our Open Banking reforms will revolutionise the ability of consumers to shop around for a better deal. By giving individuals access to personal data currently held by their bank, they will be able to better compare prices and switch between products and providers.
The ACCC’s inquiry follows the Productivity Commission’s inquiry into Competition in the Australian Financial System which in August of this year recommended the development of an online calculator that reports on actual interest rates paid and discounts received by different types of borrowers. The Government strongly supports the objective of this recommendation and has asked the Council of Financial Regulators to accelerate the development of options for its implementation.
Improving customer outcomes and increasing competition in the banking sector is part of the Coalition’s plan for a stronger economy.