Mortgage Priceshypothecary prices
This investigation follows the government's statement to levy Major Bank Levy. It is the first that the ACCC, following the launch of Major Bank Levy, which required ANZ, CBA, NAB, Westpac and Macquarie Bank (the "Big Five") to make 0.015% quarterly payments on its debt (to increase annually by approximately $1.5 to $1.6 billion), has taken into account the prices of retail mortgage product.
Please find here our article about Major Bank Levy. It also examines the implementation of APRA's new regulatory benchmarking for pure investors and interest-based credit and the degree of competitive pressure in the private mortgage product markets. This paper looks at the results of the ACCC and its impact on creditors and borrower.
One of the questions everyone is asking, not least the ACCC's, is: Will the big bank levy be passed on to the consumer by raising the interest on it? The interim report stated that there had been no changes in the key interest rate forecast by the Big Five since the start of the major bank levy in November 2017 and that no concrete decision had been taken to restate prices for housing.
Whilst the ACCC has no explicit authority to prevent banking from distributing the charge to the consumer, the ACCC Chair Rod Sims has previously cautioned that the ACCC's new part in mortgage price setting would significantly enhance price driver visibility, would enable it to better grasp the banks' decision-making rationale and to evaluate whether price changes are due to the charge in order to discourage its distribution to them.
As a result of a mixture of announced and discount rebates, the vast majority will pay interest significantly below their key interest levels. This means, however, that it is hard for the consumer to assess the relatively attractive nature of housing loans on the basis of key interest Rates.
In addition, discount discretion is usually granted on the basis of factors that differ from institution to institution, from individual to individual, and are often very obscure to individual clients. Typically, the median interest levels charged for underlying or "no-frills" financial instruments (which have fewer functions than traditional floating interest mortgage products) are higher than those charged for standardised financial instruments after taking into account rebates.
ACCC has expressed concern that borrower may expect a borrower to be impartial in situations where some of the major mortgage intermediaries are in possession of or related to one of the Big Five. A new borrower pays on avarage significantly lower interest rate than an old borrower. Borrower switching mortgage provider should achieve significant cost-cutting.
Big Five favored rising floating rate interest rate to help meet sales goals, as small rises in floating rate interest rate tended to have a significant effect on sales without significantly losing customer base. Big Four banking is mainly focused on the price promotions of the other, excluding other creditors.
Big Five price behavior seems to be more compatible with'having a common interest in preventing interference with each other' price results rather than providing the cheapest interest rates to vie for free markets. Big Five are very vulnerable to the reputation effects of the timings of their interest changes.
In general, the Big Five's announcement of changes in interest Rates are clocked to track the RBA's notifications. The reason for this may be that the general population is expecting a shift in key interest levels or that other big fives will then also be changing their key interest levels, leading to some sort of PR work.
There is no tendency for the Big Five to fully reveal to the general public what they call "selective reporting" when they consider changing key interest rate levels. How do APRA's actions affect the price of pure investment and pure interest rate borrowing? APRA's two efforts to mitigate the risk to the sustainability of the finance system posed by the construction industry (setting an average 10 per cent per annum rate of increase for private mortgage credit to private individuals and a 30 per cent rate of increase for new private mortgage credit with interest only repayments) have prompted the Big Five, inter alia, to cut down incremental rebates on private mortgage credit to private individuals and to strengthen credit approvals for investment borrower debt.
It is important to note that APRA's regulatory benchmarking has impaired banks' ability to competing on prices for mortgage loans to investors and pure interest rate debtors, as the offer of lower interest rate products may draw too many new borrower and the market may run the risks of violating APRA's benchmarking. After June 30, 2018, the ACCC will publish a Concluding Statement that takes into account the Big Five's decision on prices until June 30, 2018 and explains how the Big Five have treated Major Levy in their decision on prices and more generally.
ACCC will also examine: charges for private mortgage lending; the nature of the unpriced competitive environment exercised by creditors; the impact of consumers' conduct on prices for private mortgage lending; openness and the promotion of greater competitive pressure between creditors in this area.