The ACCC inquiry into residential mortgage prices has found that the major banks profit off price confusion and lack incentives to make prices more transparent.
The Australians Competition and Consumer Commission was directed back in May to investigate whether the Major Bank Levy would impact the prices of residential mortgage products in the banks affected by the new levy.
The report found that the banks may not have raised prices due to the levy, but the nature of the market meant that consumers were paying above what they needed to.
“We consider that the big four banks profit from the suppression of borrower incentives to shop around and lack strong incentives to make prices more transparent,” the report said.
The mortgage market was found by the ACCC to be characterised by opaque discretionary pricing which stifled competition and increased costs to the borrowers.
The cost of price discovery was said to be a key reason by the commission to why most borrowers obtained just one quote before taking out their residential mortgage.
The ACCC found that media attention on the banks rising from the royal commission and the productive commission inquiry had prompted some borrowers to review their mortgage prices and to shop around.
Despite this, the rate of borrowers switching lenders remained low with less than 4 per cent of variable rate mortgage refinancing to another lender and just over 2 per cent of fixed rate mortgage refinancing.
Approximately 11 per cent of variable rate mortgages were able to negotiate a better rate during the period of inquiry to 30 June this year, with price reductions coming as a result of borrowers looking to switch to a new lender.
The ACCC also investigated the raise of variable interest rate changes as first announced by ANZ but soon followed by the other big banks.
The commission found this to be an “illustration of accommodative pricing behaviour among the big four banks”.
As a result of the mid-year changes the big four banks had an estimated revenue gain of over $1.1 billion found the commission.
It was found by the commission that the APRA interest-only benchmark had lessened price competition and instead had given banks the opportunity to synchronise their significant interest to rates.
Treasurer Josh Frydenberg said the results were evidence that the move to improve competition and transparency in the market were the right ones.
“Open Banking reforms will revolutionise the ability of consumers to shop around for a better deal. By giving individuals access to personal data currently held by their bank, they will be able to better compare prices and switch between products and providers,” he said in a statement.
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