LATEST NEWS! 8th January, 2024
Australian borrowers are being encouraged by Treasury officials to review and switch their home loans to better deals, with brokers playing a pivotal role in driving competition. The Department of Treasury highlighted this in response to questions from the Senate economics committee, underscoring ongoing efforts to improve home lending competitiveness.
Competition on the Rise
Treasury pointed to The Australia Institute’s report, Profit in Home Lending, as “stylised analysis” of interest margins, noting that overall banking net interest margins are at a 20-year low of 1.8%. This decline in profitability spans bank sizes:
- Major banks: 1.8%
- Medium-sized banks: 1.7%
- Small banks: 1.9%
- Very small banks: 2.5%
The department added that the major banks’ home loan market share has dropped by 2.7 percentage points since 2019, reflecting growing competition from mid-tier lenders. Around 74% of home loans are now broker-originated, with brokers required to act in the borrower’s best interests, further levelling the playing field.
New Measures to Boost Switching
Treasurer Jim Chalmers announced in June 2024 a series of initiatives aimed at helping borrowers switch to better deals, including:
- Simplifying the process of exiting a mortgage by providing easy access to exit forms.
- Mandating banks to notify customers when their interest rates change, especially after introductory periods.
Treasury is also investigating behavioural economics strategies to nudge customers toward cheaper loans and exploring new industry standards to improve transparency.
Legislation in Progress
The Treasury confirmed that work is already underway on these measures, with some requiring legislative changes. Kelly noted that these efforts are “in progress” as the government prepares advice in response to the ACCC’s Home Loan Price Inquiry.
Supporting Smaller Banks
The government is also reviewing ways to enhance competition from small and medium-sized banks. The Council of Financial Regulators (CFR) is seeking stakeholder feedback on this issue, with submissions due by 7 February 2025.
Treasury concluded:
“The Government encourages Australians to find and switch to better home lending deals to improve competitiveness in banking markets.”
These changes aim to empower borrowers, improve transparency, and maintain momentum in the evolving home loan market.
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