In October 2019, the Treasurer direct the ACCC to conduct an enquiry into home loan pricing, wanting the commission to investigate two key concerns:
- The prices charged for home loans since 1 January 2019
- Impediments to borrowers switching to alternative lenders
Whilst the interim report, focusing on home loan prices, was released in April 2020, the final report has now been released which has found that many Australians with older home loans continue to pay significantly higher interest rates than those with newer loans.
This report also focuses on impediments to borrowers switching to alternative lenders and identifies recommendations to address these impediments. The ACCC also recommended that the Government action a further 5-year monitoring enquiry into pricing and competition in the home loan market.
So, let’s break down the recommendations outlined in the report and how you can action that advice yourself today.
All lenders should be required to provide an annual prompt to borrowers with older variable rates (loans three or more years old)
This recommendation is to encourage borrowers to engage in the home loan market so that they can potentially switch lenders or home loan products.
The problem, however, is that for a lender, complacency drives income. Often referred to as the “loyalty tax”, lenders often make a lot more money on customers who “set and forget” their loans – sticking with the original loan for years, if not, the full length of the loan.
Solving the problem now: Instead of waiting for the government to set requirements for lenders, you can act today.
At Sanford Finance, we do this for you, monitoring and reviewing every client’s loan annually, ensuring you always have the best loan product for your needs. In addition to this, we also encourage clients to get in contact should they feel their rate is too high or their circumstances have changed, and the loan product no longer suits their needs.
All lenders should provide borrowers with a standardised form to discharge the borrower’s home loan from their existing lender
The goal of this recommendation is to make it easier for borrowers to switch loans – providing a form which is easy to access, fill out and submit. They also recommended that a 10-day time limit be placed on lenders to complete the discharge process.
Currently the process to switch from one lender to another varies greatly depending on which lender you are currently with. For some lenders, the process is made simple whilst others make the task arduous and frustrating, often leading to borrowers sticking with their loan just to avoid the process.
Solving the problem now: If the thought of refinancing or switching lenders stresses you out (or feels like another thing on the to-do list that you just don’t have time for) we’re here to help. Whilst we can guarantee the discharge process will be done in 10 days, our team will do everything in our power to speed up the process.
Get in touch with our team today so we can assess your loan and find a loan product that’s more suited to your needs.
Who should consider renegotiating their loan?
With the Home Loan Inquiry identifying that, as at December 2019, almost half of all variable rate loans were at least four years old, most Australians should take the time to look at their loan and see if there is a better rate or loan product available.
As of September 2020, borrowers with home loans between three and five years old were, on average, paying around 58 basis points above the interest rate for new loans. Borrowers with home loans between five and ten years old were, on average, paying around 71 basis points above the average interest rate for new loans. Borrowers with loans older than ten years old were, on average, paying around 104 basis points above the average interest rate for new loans.
Many of these borrowers could save a significant amount of money by switching to a new home loan. For example, if a borrower with a home loan of $250,000 switched to a home loan with an interest rate 58 basis points lower than their existing loan, they would save over $1,400 in interest in the first year. Over the remaining life of their loan, that borrower would save over $17,000 in interest in net present value terms.
Where should you start?
Thinking that now is the right time to look at your loan and find a better deal?
Get in touch with our team today to start the ball rolling. We’ll work with you to look at your current loan, your present circumstances and will recommend alternate loans that are better suited to your needs.