08/01/2025
Government recognising the need for Mortgage Professionals, to drive positive outcomes in reducing disproportionate bank profits.
Treasury officials have said the government encourages borrowers to “find and switch to better” mortgages, highlighting the role of brokers in providing competition.
The Department of the Treasury has said that it believes borrowers should be reviewing their mortgages, noting the role of brokers in supporting home buyers and revealing the work being undertaken by the government to improve the competitiveness of the banking market.
The comments were supplied in response to questions on notice from the Senate economics legislation committee following its Supplementary Budget Estimates 2024–25 hearings in November 2024.
During the hearings, Treasury officials Brenton Philp (deputy secretary, markets group) and Lynn Kelly (first assistant secretary for the financial system division at the markets group) were asked whether the Treasury had provided any advice to the government – or had any views on – competition issues in the retail banking sector.
The committee was particularly interested in views on how and why banks are able to disproportionately extract profit from owner-occupier loans (around $17.6 billion, according to The Australia Institute) and whether this reflects a lack of competition.
Senator Neil McKim (Australian Greens Whip) asked Philp and Kelly whether Treasury had “cast its collective mind in that direction”. Indeed, McKim has recently revealed that – should the Greens win power in the next election – it would bring in discounted mortgages and cap the amount of profit the big banks can make on these mortgages.
Philp said he was not familiar with the report, but noted that there had been an increase in competition in home loans recently, highlighting the role of brokers.
“The net interest margin for the banks is at a 20-year low; I think it’s at 1.8 per cent or thereabouts, at the moment,” he told the committee.
“The way competition tends to work in the home loan market is a lot of it is driven through brokers; I think about 70 per cent of home loans are conducted that way. So a lot of the competition is through the broker side of the house.”
Responding more fully in its answer to the question on notice, Treasury said The Australia Institute’s report Profit in Home Lending provided “stylised analysis” of interest margins achieved by major banks and other banks in the home loan sector.
“Net interest margins are used as a measure of profitability but are generally reported across banks’ entire operations. For example, RBA data show net interest margins in the banking sector to be at 20-year lows of 1.8 per cent, with the level for different bank size being 1.8 per cent for the major banks, 1.7 per cent for medium-sized banks, 1.9 per cent for small banks and 2.5 per cent for very small banks,” the response said.
The department went on to say that the major banks’ loss of market share over the last five years indicates “improvements in competitiveness of the home lending market”.
“According to the latest data from the Australian Prudential Regulation Authority, the four major banks’ share of owner-occupied home loans has fallen by 2.7 percentage points from July 2019 to July 2024,” it said.
“This loss of market share reflects competitive pressure from mid-tier banks and around 74 per cent of home loans being originated through mortgage brokers, who are required to act in the best interests of the borrower.”
Work to improve home lending competition ‘in progress’
The two Treasury officials also said that they had been preparing advice to government on improving competition in home lending, with work already underway to respond to the Australian Competition & Consumer Commission (ACCC) Home Loan Price Inquiry.
For example, as announced by Treasurer Jim Chalmers in June 2024, five measures are being addressed to help Australians “find and switch to better mortgage deals”, including:
Making it easier to switch loans by having customers have direct and easy access to the form needed to exit a mortgage.
Requiring banks to tell customers when their interest rates change (particularly when it comes to bonus interest rate offers and when that introductory period ends).
According to Treasury, the latter may be implemented through the development of industry standards.
Moreover, Treasury said it had been asked to investigate how behavioural economics and prompts could be used by the banking sector to better encourage customers to switch to cheaper loans and retail borrowing products.
Kelly said that some of the changes will require legislation and some require industry practice to change, but added the legislation is currently being worked on and is “in progress”.
In its answer to questions on notice, Treasury said: “The Government encourages Australians to find and switch to better home lending deals.
“To improve the competitiveness of banking markets, the Treasurer announced, on 15 June 2024, several measures to support consumers to find and switch to a better home loan.
“The Treasurer also announced a review by the Council of Financial Regulators into the challenges faced by small and medium-sized banks, focusing on the role that these banks play in providing competition in the sector.”
The Council of Financial Regulators (CFR) is currently calling for responses to its consultation on how to improve competition for small and medium-sized banks, with feedback from stakeholders requested by 7 February 2025.
