The ACCC publishes its Final Report in the Home Loan Price Inquiry

In its Final Report in the Home Loan Price Inquiry ("Final Report"), the Australian Competition and Consumer Commission ("ACCC") found that many Australians with older home loans continue to pay significantly higher interest rates than those with newer loans. The Final Report focused on perceived impediments to borrowers switching to alternative lenders, and identified recommendations to address specific impediments. The ACCC also recommended that the Government direct it to embark on a further 5-year monitoring inquiry into competition and pricing in the home loan market. The Government's decision on the ACCC's recommendations is pending.

On 14 October 2019, the Australian Government directed the ACCC to conduct an inquiry into home loan pricing, focussing on two issues: 

• prices charged for home loans since 1 January 2019 by Australia's major banks; and
• impediments to consumers switching to alternative home loan suppliers.

Building on an earlier Interim Report issued by the ACCC, focussing on the first of the two issues, the Commonwealth Government released the ACCC's Final Report, examining the second issue, on 5 December 2020. 

The central findings of the Final Report were that many Australians with older home loans continue to pay significantly higher interest rates than borrowers with newer home loans, and that borrowers could save significant amounts of money by seeking a lower rate from their existing lender or switching to a new lender.

The ACCC found that borrowers with home loans between three and five years old paid on average about 58 basis points more than the average interest rate paid for new loans, whilst borrowers with loans more than 10 years old were, on average, paying about 104 basis points more. The ACCC calculated that a borrower with a home loan of A$ 250,000, paying 58 basis points more than the average interest rate, could save more than A$ 17,000 in interest over the term of the loan.

Having regard to these findings, the ACCC made four recommendations: 

• Recommendation 1: all lenders should be required to provide an annual prompt to borrowers with older variable rate loans (originated three or more years ago) to encourage such borrowers to engage in the home loan market and potentially switch lenders or home loan products.
• Recommendations 2 and 3: all lenders should provide borrowers with a standardised form to discharge the borrower's home loan from their existing lender, which should be easy to access, fill out and submit. To complement this, the ACCC also recommended that a time limit of 10 days be placed on lenders to complete the discharge process.
• Recommendation 4: the ACCC should "continue to inquire into and monitor competition and pricing in the home loan market, under government direction". Specifically, the ACCC recommended a 5-year monitoring directive, initially focussing on the 10 largest lenders in the home loan market.

The timeline for the Australian Government's decision on the ACCC's recommendations is as yet unclear, particularly given the other pressing issues on the Government's agenda. It is also uncertain whether market participants will be invited to make submissions to the Government in advance of its decision.

The ACCC has been examining this area since 2017 and, given its ongoing importance to the Australian economy, it is unlikely that this most recent inquiry will conclude the ACCC's fascination with mortgage loan pricing, regardless of whether it is directed to undertake a further 5-year monitoring inquiry.

Although the relevance of an ongoing examination has arguably diminished in the short term, given Australia's current low interest rate environment, Australian lenders should carefully consider any future home loan pricing decisions and strategies as any such conduct is likely to be closely examined by the ACCC.

With thanks to Jack Heithersay and Campbell Rice of Ashurst for their contributions.