Many Australians with older home loans continue to pay significantly higher interest rates than borrowers with newer home loans, potentially costing them many thousands of dollars over time, the ACCC has found in a report published in December 2020.
The final report of the ACCC’s Home Loan Price Inquiry highlights these borrowers could save money by seeking a lower rate from their existing lender or switching to a new lender.
To encourage this process, the ACCC has recommended that lenders be required to regularly prompt borrowers whose loans are older than three years to review their current interest rate and to consider the potential benefits of switching products or lenders.
“A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so,” ACCC Chair Rod Sims said.
“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort.”
“Our recommended prompt would clearly set out for many borrowers just how much higher their interest rate is compared to new borrowers,” Mr Sims said. “This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender. It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector.”
The ACCC found that, as at September 2020, borrowers with home loans between three and five years old paid on average about 0.58% more than the average interest rate paid for new loans. Such a borrower with a home loan of $250,000 could save more than $1,400 in interest in the first year by switching to a loan with the lower, average interest rate paid for new loans. Over the remaining term of the loan, that borrower could save more than $17,000 in interest.
As loans age, the gap between the rates paid on older loans compared with new loans widens. Borrowers with loans more than 10 years old were, on average, paying about 1.04% more than the average interest rate paid for new loans.
“If you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates,” Mr Sims said.
The report also highlighted the fact existing lenders currently have no incentive to care for existing clients, and that the discharge process is confusing and frustrating.
This has again highlighted the broker role in Australia. The ACCC has confirmed banks take advantage of long-term customers.
All borrowers need to remember: A lender sells you their product. A mortgage broker is on your side and has a legal duty to put your interests first when recommending a home loan, whereas a lender has no legal obligation to do so.
Daryl Borden, your Dingley Village Mortgage Broker, Ph. 0417 593 893 ACL 392184
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