Forcing banks to fess up on rates

BANKS would have to tell homeowners every year if their interest rate was their best offer, under changes that could slice tens of thousands of dollars off mortgage costs.

An investigation into home loan pricing by the consumer watchdog has found loyal customers are being dudded by banks as more competitive interest rates are only passed on to new borrowers.

Almost half of all variable rate loans have been unchanged for at least four years, and the gap between the rate charged to existing and new customers widens as loans get older.

The Australian Competition and Consumer Commission’s report, shows switching to a bank’s average interest rate could save a customer with a $500,000 loan that was less than five years old $2800 in a year and $34,000 over the life of the mortgage.

For a homeowner with a $500,000 loan held for a decade, switching to their bank’s average rate could save $5140 in a year and $50,300 overall.

The ACCC’s plan, which is being considered by the federal government, would require lenders to tell borrowers every year what interest rate they were being charged and what the average rate was on new loans, while telling them how to get a better deal.

With more than 100 lenders offering nearly 4000 home loan products, the commission’s inquiry also exposed widespread confusion about pricing information and switching between banks.

It said borrowers faced hurdles at every turn, from obtaining information about different deals and comparing offers, to actually switching between lenders.

The commission found “discretionary discounting” was “opaque”, with better interest rates often available but only offered on a case-by-case basis, and only after customers had made formal applications for loans.

Treasurer Josh Frydenberg, who ordered the report, said it also showed that “unclear, uncertain and lengthy discharge processes” often meant borrowers gave up trying to switch to a better deal.

The ACCC said lenders had no incentive to remove “pain points” in the switching process. To resolve this, the watchdog recommended requiring lenders to provide a standardised discharge form to borrowers, which the banks would have a maximum of 10 days to complete once it was signed by their customers.

The commission also proposed an ongoing review of competition and pricing in the home loan market. The Treasurer said the government would “respond in due course”.