This article is from the Australian Property Journal archive
AUSTRALIA’S banks are again under the pump, facing an inquiry from the Australian Competition and Consumer Commission into home loan pricing as they fail to pass on recent interest rate cuts.
Treasurer Josh Frydenberg said the inquiry would “support the government’s commitment to promoting competition and good consumer outcomes in the home loan market, including by bringing more transparency to the pricing practices of the banks”.
“As such, the Treasurer is requesting the ACCC hold a price inquiry into the market for the supply of home loans.”
The interim report is due at the end of March, and the final report by September 30.
Interest rates have been cut two in recent months and now sit at a record low of 0.75%. The big four, Commonwealth Bank, ANZ, National Australia Bank, and Westpac, and have said tight funding has prevented them from passing on the cuts in full.
Frydenberg said the prices charged for residential mortgages would be investigated across the entire market, including major banks, smaller banks, and non-bank lenders, and consider how banks make pricing decisions, including passing on movements in the official cash rate.
Also under the ACCC’s microscope will be differences in the prices paid by new and existing customers, between reference interest rates published by suppliers and the interest rates paid by customers, and barriers that may prevent consumers from switching lenders.
“We need all the information at hand about the cost of funds of the banks, about the difference between what they charge existing customers and new customers. And in terms of why they are not passing on these rate cuts in full after the RBA has said their cost of funds has come down significantly and they should be passed on” Frydenberg told ABC’s News Breakfast.
Frydenberg ruled out increasing the bank levy, and has previously stated legislating for banks to pass on rate cuts in full is off the table.
Rod Sims, chairman of the ACCC, told media that a mortgage was the most important financial transaction most people would ever make.
“We want to make sure that the customers, consumers, community, really understand exactly how banks make their decisions, why they make their decisions.”
“There is often a lot of confusion amongst customers in relation to the big difference between the headline rate, the standard variable rate they see, and what people actually pay.”
General consensus has another cash rate cut in the coming months, and some commentators predict another cut following to 0.25%, although that is considered to be the lowest the Reserve Bank would go.
“Rather, once rate cuts are exhausted at 0.25% the RBA would likely turn to other unconventional monetary policy measures if needed next year including quantitative easing,” AMP Capital chief economist, Shane Oliver said.
“This is not our base case but the probability of it occurring is rising.”
Moody’s Investors Service believes mortgage delinquencies will increase moderately over the remainder of 2019 because of high debt levels, worsening macroeconomic conditions and the conversion of interest-only mortgages to principal and interest loans.
Ratecity chief executive officer Paul Marshall was sceptical that banks would pass on the most recent cuts in full, given rates were already so low.
“It’s a juggling act between the interests of savers, borrowers and shareholders, especially now interest rates are in unchartered territory.”
