ACCC exposes big 4 bank's $1.1 billion windfall revenue after synchronised pricing of IO borrowers

ACCC exposes big 4 bank's $1.1 billion windfall revenue after synchronised pricing of IO borrowers
ACCC exposes big 4 bank's $1.1 billion windfall revenue after synchronised pricing of IO borrowers

The competition regulator has slammed the major banks for charging loyal customers too much for their mortgages.

The Australian Competition and Consumer Commission has concluded there was  "synchronised" behaviour between the banks after the ANZ increased its interest only mortgage rates in 2017.

The big four banks have been accused of using the cover of regulatory intervention to lift rates on interest-only loans.

The report stopped short of accusing the banks of colluding, with Channel 10 network political editor Peter Van Onselen saying there had been no meeting between the banks.

The ACCC report found existing borrowers who did not actively shop around for a better deal on a regular basis are the main losers.

The competition watchdog noted the bad bank behaviour was aided and abetted by the "oligopoly market structure."

It says ANZ, which was the first to lift rates in June 2017, did so expecting all the others to fall in behind.

An existing borrower with an average-sized residential mortgage who negotiated to pay the same interest rate as the average new borrower from 30 June 2018 could initially save up to $850 a year in interest, it has concluded.
“We consider that ANZ increased its rates, clear in its belief that, given the APRA limits, the other big four banks would follow its lead, and this expectation proved correct,” ACCC chairman Rod Sims said.

The ACCC calculated that the rate increases by the five banks would have added, in the first year, about $1300 in interest charged to the average-sized owner-occupier interest-only standard variable mortgage.

“Such is the oligopolistic nature of banking that the banks all took the opportunity to increase rates on both new and existing interest-only mortgages, despite APRA’s measures only applying to new lending,” Mr Sims said.

The size of the saving depends on the category of residential mortgage but could amount to 32 basis points, or 0.32 per cent.

The ACCC report has exposed the big 4 bank's windfall since its repriced its lending for investors on interest only loans.

It has enabled a $1.1 billion revenue windfall in what could be viewed as synchronized pricing by the big banks.

The Residential Mortgage Price Inquiry is the first task of the ACCC’s Financial Services Unit (FSU) with the price monitoring period to finish on 30 June 2018.

The then Treasurer, the Hon Scott Morrison issued a direction in May 2017 requiring the ACCC to undertake an inquiry into the prices charged or proposed to be charged in relation to residential mortgage products by Authorised Deposit-taking Institutions (ADIs) affected by the Major Bank Levy.

Along with Macquarie, the inquiry noted combined, these five ADIs (the Inquiry Banks) held approximately $1.3 trillion in outstanding residential mortgages as at December 2017.

This was about 84 per cent of all outstanding residential mortgages held by all banks in Australia.

Macquarie Bank had the smallest residential mortgage portfolio of the five banks by a large margin.

The remaining Inquiry Banks—colloquially referred to as the ‘big four banks’—accounted for about 75 per cent of the value of all new residential mortgages approved by ADIs in the September quarter of 2017.

There are over 100 other lenders, mostly ADIs, that also provide residential mortgages. The pricing of these other lenders was not the focus of this inquiry which found the opaque, discretionary pricing of residential mortgages by banks makes it difficult and time consuming for borrowers to shop around and stifles price competition.

The ACCC reports that about 11 per cent of borrowers with variable rate mortgages had the price of their current residential mortgage reduced by one of the five banks under review in the year to 30 June 2018.

“I encourage more people to ask their lender whether they are getting the lowest possible interest rates for their residential mortgage and, as they do so, be ready to threaten to switch to another lender,” Mr Sims said.

“I am afraid that the threat of switching banks will often be necessary to achieve a competitive mortgage rate.”

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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