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‘Enough is enough’: Kochie urges change to mortgage process as RBA keep the cash rate on hold

Reviewed by expert, David Koch
4 min read
6 Feb 2024
koch

Compare the Market’s Economic Director, David Koch, has urged the government to prioritise reforms that could help homeowners save money on their mortgages, as any further delays could “end up costing people thousands”.

In December, the government announced it would review the Australian Competition & Consumer Commission (ACCC) Home Loan Price Inquiry recommendations from its 2020 review of the mortgage process.

If the ACCC’s recommendations are mandated, homeowners could benefit from:

– Speedier discharge times, with a maximum 10 business days to complete the process

– A streamlined process that isn’t as complicated or confusing as the current one

– Continued monitoring of competition and prices in the home loan market

Mr Koch said when the difference could be costing homeowners thousands, the government should be doing everything in its power to make refinancing easier.

“The government needs to make this process easier by mandating a standardised discharge form and putting a 10 day deadline on the process.

“Right now, lenders are allowed to drag their feet to retain business, but these reforms could help drive competition in the home loan market,” Mr Koch said.

Meanwhile, thousands of homeowners could be paying more for their home loan despite the RBA’s decision to hold the cash rate because they have fallen onto “back-book” rates, Compare the Market’s Economic Director David Koch has warned.

“Back book rates” are where existing loyal customers are being charged a higher interest rate than new “front book” customers.

“While it’s great to see the issue finally getting some attention, urgent action is needed to make up for slow progress over the past four years,” Mr Koch said.

“There’s a significant difference between what new customers and old customers pay and right now not enough is being done to help those people onto better rates.

“And the gap between advertised and back book rates is hurting even more since most of the banks have passed on the RBA’s 13 rate hikes in full.

“One of the big banks has a net interest margin of 2.31% – now that’s approaching the size of the 3% serviceability buffer banks stress test you, so that’s a huge discrepancy.”

How do Aussie homeowners compare?

A Compare the Market survey of homeowners in September 2023 found that 18% did not know their interest rate while approximately 45% had been with the same lender for more than five years.

Compare the Market analysis of some of the rates available from the Big Four showed the average difference between front-book and back-book rates is 1.96%.

Therefore, a person with an owner-occupier $750,000 loan could be saving $1,008 a month when they switch from a rate of 8.54% to 6.58%.

Mortgage sizeThe difference between variable rates in the market
Minimum monthly repayments on variable P&I rate of 6.58%Minimum monthly repayments on variable P&I rate of 8.54%Difference in monthly minimum repayments
$500,000 $3,187 $3,859 $672
$600,000$3,824 $4,631 $806
$750,000 $4,780 $5,788 $1,008
$900,000 $5,736 $6,946 $1,210
$1,000,000 $6,373$7,718 $1,344
Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 6.58% compared to 8.54% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees.

“The decision to switch and save ultimately lies with the borrower,” Mr Koch said.

Mr Koch encouraged borrowers to be sceptical about their current interest rate and to use websites like Compare the Market to make sure it’s competitive.

“I’d urge anyone who’s been with the same bank or lender for the past few years to be bit inquisitive, do some research, and see if they’re actually getting a good deal.

“If there’s a big difference between your rate, and the ones that are advertised, it’s probably time to walk.”

For more information, please contact:  

Natasha Innes | 0416 705 514 | [email protected]

Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.

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