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An increasing number of home loan customers are failing to take advantage of the interest rates on offer.
On Monday, 27 April, the Australian Competition and Consumer Commission (ACCC) handed down its Home Loan Price Inquiry interim report, which examines how the big four banks priced their mortgages between 1 January 2019 and 31 October 2019.
The federal Treasury backed the release of the report, stating that the findings “underline the importance of greater transparency and competition in the sector”.
ACCC chair Rod Sims said the report revealed the banks’ major motivators in not passing on savings to consumers, noting “the banks were attempting to shore up their profitability during a period of low interest rates”.
“It was their strong preference, after the RBA’s cuts, not to further reduce the rates customers were earning on some deposit products as they approached zero per cent.
He added that “the banks’ reluctance to cut these deposit rates led them to anticipate lower profits, which they aimed to recover by not always fully passing through cash rate cuts to their mortgage customers”.
Speaking on the latest episode of the What’s Making Headlines podcast, which aired on Facebook Live on 30 April 2020, Tom Panos and Phillip Tarrant addressed the report, saying there appears to be a disconnect still occurring when it comes to the banks and passing rates down to home loan customers.
“We’re in a downward rate environment, but that doesn’t necessarily mean that those savings, if you want to call them that, are getting passed onto borrowers,” Mr Tarrant said.
“So, you’re seeing a bit of a disconnect at the moment with people looking at their interest rates. Some people are getting some very sharp rates from some of the major lenders and also the second-tier lenders. But some other people, they’re a bit out of kilter with where their interest rates are right now because they’re not getting these rates passed on. This comes down to the complexity of costs of funds and margins within banks.
“It’s shaping the real estate markets, but it’s also shaping how investors and owner-occupiers are buying and selling real estate and getting the right access to finance at the right rate.
“…You’re going to see this moving forward, this growing gap between lenders and whether or not you can actually get yourself a really sharp interest rate.”
Mr Panos offered a similar sentiment, noting that referral relationships have become that much more paramount in the current climate.
“I’m beginning to realise the importance of having that close relationship with your mortgage broker or a close relationship with your banker,” he said.
“Realistically, if you hang around with your banker or your mortgage broker and they occasionally go to the sport games together, when there’s anything that’s of use, you’re going to be the first person that they call. That’s just a fact of life.
“I would say to anyone watching this right now that is an investor of real estate, don’t underestimate the role of the mortgage broker or the people that provide you the money.”