Associations applaud move to examine home loan price inquiry

The inquiry, commissioned by the Morrison government in October 2019, reviewed the mortgage pricing process and made four recommendations to ensure the pricing practices of Australia’s financial institutions are better understood and made more transparent.

Given the change of government following the federal election in 2021, there has been no response to the Home Loan Price Inquiry as yet, and the Albanese government has no obligation to do so.

However, Mr Chalmers has now confirmed that it will be examining the report.

Responding to a new report from the ACCC into retail deposit products on Friday (15 December), Mr Chalmers said: “Increased interest on savings should be a silver lining from the higher mortgage rates Australians are now experiencing.

“Just as we want Australians to get a good deal on their mortgages, we want savers to get the benefits of higher interest rates.

“We expect banks to treat their customers fairly when it comes to their savings accounts and I have asked Treasury to examine these proposals in conjunction with the outstanding recommendations of the 2020 ACCC Home Loan Price Inquiry.

“A government response will be released in 2024.”

Both the Finance Brokers Association of Australasia and the Mortgage and Finance Association of Australia (MFAA) have welcomed the move.

Speaking to The Adviser after the announcement, the managing director of the FBAA, Peter White AM, said he was “extremely happy” that the government was going to consider the home loan price inquiry recommendations, particularly given the ongoing differential between front book and back book pricing of loans.

Mr White explained: “This is something that needs to be looked at ... it is just wrong and lenders need to be transparent about what’s going on.”

He said that if lenders had to take on an annual prompt for variable rate borrowers who took out a loan more than three years ago, “people would be aware of what those differentials are” and therefore could be able to access a better loan. Similarly, he said that “sorting out the discharge process” would also help borrowers save money, stating he believed it should be “a digital transaction that does not require human intervention.”

Mr White continued that he had raised the back book differential with the Treasurer at a meeting in July this year, noting that the rate difference between existing customers and new customers was between 48 basis points and 54 basis points at the time.

Anja Pannek, the CEO of the MFAA, has also welcomed the news, stating that she was “pleased but not surprised”.

Ms Pannek flagged that the association has been particularly “calling for action” on two of the recommendations recently: a standardised discharge process and capping the discharge process at 10 days.

Indeed, earlier this month, she urged the government to implement the recommendations, stating: “Against the backdrop of cost-of-living pressures, consumer outcomes can be improved through further regulating home loan discharges thereby promoting competition and choice for home loan borrowers.”

Following the news on Friday, Ms Pannek said that improving the loan discharge process was not about eliminating retention activity by incumbent lenders, but “taking friction out of the customer experience”.

“Retention activity is a normal part of business, and we encourage lenders to put their best foot forward when existing customers and their brokers ask about repricing,” she said.

“We know from our member research that negotiating with the existing lender is the first step for our members take, and this should be respected by lenders,” she said.

“With borrowers facing both cost-of-living pressures and higher mortgage interest rates, now is not the time to be making it harder for Australians to refinance their home loans. In fact, mortgage brokers make it easier for Australians to refinance and to get a better deal. To that end, we believe the recommendation for a prompt to nudge borrowers to contact a mortgage broker to assist them to get a better deal is a sensible one.”

Ms Pannek thanked members and industry partners for their “insights” and experiences at roundtables that were held by the association, which contributed to the MFAA’s work to “ensure the inquiry and its recommendations were not forgotten”, Ms Pannek said, highlighting its “targeted advocacy with Government and Treasury, raising the issue at numerous meetings and in submissions including its 2023-24 Pre-budget submission”.

“Our advocacy on this issue has been based on both data and the real experiences of our members and their clients,” she said.

“We held roundtables with MFAA members across the country earlier this year where they shared examples of their experiences of the hurdles they, and their clients, face when discharging their home loan to refinance. It was clear that much of the pressure that was being felt is simply unnecessary and could be significantly reduced if the inquiry recommendations were implemented,” Ms Pannek continued.

The MFAA said that these stories of “everyday Australians trying to access more affordable loans” made it “obvious that these issues need to be addressed”.

“We thank our members and our industry partners for their insights which helped support our advocacy work to achieve this great outcome.”

A reminder of the report recommendations

In its 94-page report, the ACCC found that, as of September 2020, borrowers with home loans between three and five years old paid on average about 58 bps more than the average interest rate paid for new loans.

Further, it found that borrowers with loans more than 10 years old were, on average, paying approximately 104 bps more than the average interest rate paid for new loans.

It put forward four changes that could make mortgage pricing more transparent and reduce barriers to switching:

• An annual prompt for variable-rate borrowers who took out a loan three or more years ago to encourage customers to contact their existing lender to ask for a better rate and encourage borrowers to contact their mortgage broker.
• A standardised ‘discharge authority’ form that is easy to access, fill out, and submit, using an identical standard form template rather than agreeing to common criteria.
• A maximum time frame of 10 business days to complete the discharge process.
• Continued monitoring of competition and prices in the home loan market.

[Related: Make mortgages great again: 4 recommendations from the ACCC]