‘Disgraceful’: ASIC boss slams mortgage market

Speaking at the ASIC Forum in Sydney yesterday, Mr Medcraft was candid in his evaluation of the current levels of competition in the mortgage market.

“I think the residential mortgage market is disgraceful in this country,” he said. “I just still can’t believe that people accept to pay whatever the bank says [the rate] is.”

Mr Medcraft explained that corporates abandoned prime lending “years ago” because they “didn’t trust what the banks told them”. He added that corporate borrowers have since gravitated towards rates that use a margin over a benchmark.

Asked whether the issue was the borrowers’ fault, the ASIC boss said “inertia” among borrowers was a factor, but explained how borrowers are not encouraged to switch mortgage providers out of fear that their new lender would simply “move against them” and lift rates.

“Whereas if you have a margin over a benchmark, they can’t change the margin. We should have something that is a margin over a benchmark,” Mr Medcraft said.

Australia’s banks have repeatedly hiked home loan rates out-of-cycle over the last 18 months, citing increased capital requirements, margin pressure and regulatory measures to rein in investor lending.

On Thursday, NAB announced a raft of changes to its home loan rates including a 25-basis point increase for investors and a 7-basis point increase for owner-occupiers.

“The difference between what we charge and how much it costs us to fund a mortgage remains under pressure, with intense competition, increasing regulation, and elevated funding costs,” NAB chief operating officer Antony Cahill said.

On Friday Westpac announced that its variable rate home loans would rise up to 28 basis points. Westpac Consumer Bank CEO George Frazis said the changes were due to “a number of economic and regulatory factors” and were a response to increased funding costs.

ASIC’s Greg Medcraft called out the rate hikes and explained that corporate customers are treated differently to residential mortgage borrowers.

“The banks say that they are increasing their rates because of increase regulatory costs and that they are going to charge customers more,” he said.

“But they don’t do that in the corporate sector because they can’t – they have a locked-in margin above a benchmark. I do think competition in our mortgage market would be a good thing for consumers.”

[Related: Home ownership 'beyond reach']