Consumer watchdog sets its sights on the home loan industry

The Federal Government has just directed the Australian Competition and Consumer Commission (ACCC) to launch an inquiry into home loan pricing, to find out what’s holding consumers back from pursuing better offers.

The inquiry seeks to answer the following questions:

• How exactly do lenders make their pricing decisions?
• How do lender choices and consumer biases affect how consumers gather, interpret and act on home loan information?
• To what extent does all of this factor into consumers paying more than they need to for home loans?

According to ACCC Chair Rod Sims, it all boils down to transparency.

“It will be important to understand and examine the different factors that financial institutions take into account when setting their prices. Having consumers and the community understand how pricing decisions are made, why, and with what consequences is important for a well-functioning market,” Sims said in a statement.

Is there anything you can do now to save?

While the purpose of the inquiry is to root out structural issues that may take some time to resolve, here are some steps you can take now to save on your home loan.

1. Look for lenders who offer a lower rate and minimal fees. One of the most important things is finding a lower interest rate compared to what you’re paying since interest is usually the biggest expense. However, fees can also eat you alive if you’re not careful. There are plenty of lenders who will waive some of your home loan fees as part of a special offer and in fact, you can find some here.
2. Negotiate with a few new lenders. Consumers often don’t realise how much bargaining power they have; lenders would love to have you paying interest to them for decades. Plus, Australia’s new Comprehensive Credit Reporting scheme has helped increase the credit scores of millions of Aussies overnight (use Credit Simple to check yours for free). Use this to your advantage to potentially help lower your interest rate and remove some of the fees.
3. Work out how much you’ll need to borrow. You’ll need to factor in the principal you owe to your current lender, plus any fees on that end. Fees could include a discharge fee to close the account off and a repayment fee to close it out early. Add this to any fees you might owe the new lender and this is roughly what you’ll need to borrow.
4. Work out how much the new loan will cost. Use a home loan calculator to compare your current loan with the new loan. This is important because your new loan may be higher due to fees and this can add up to more than you thought over the long run, depending on how you structured the loan.

On the average Australian home loan of $372,902, a 0.5% interest-rate reduction would save someone of $40,000 over 25 years.

So while it takes a bit of effort, the savings are definitely worth it. Hopefully the ACCC’s inquiry will lead to marketplace improvements that reduce the effort you have to put in and leave you more confident to walk away from a bad rate.

What’s next for the inquiry?

To conduct its inquiry, the ACCC will be using broad powers granted by Part VIIA of the Competition and Consumer Act (2010), which makes it compulsory for subjects of such inquiries to share decision-making documents with the consumer watchdog.

The ACCC will also consult with the Reserve Bank of Australia, the Australian Prudential Regulatory Authority, and the Australian Securities and Investments Commission as it conducts its inquiry.

The ACCC expects to issue a preliminary report by the end of March 2020, with the final report scheduled for 30 September of that same year.