The cost of paying a mortgage for most Australians has risen at its fastest rate in more than seven years despite the Reserve Bank keeping rates on hold for the last 16 months, according to figures released amid fresh claims the "big four" banks are exploiting loyal customers.
Cost of living data, released by the Australian Bureau of Statistics on Wednesday, shows interest charges on mortgages for employed Australians rose by 4.5 per cent since December last year - more than double the official rate of inflation and in defiance of the RBA cash rate remaining frozen at 1.5 per cent.
On Wednesday, a withering report from the Productivity Commission accused the "four pillars" of the financial services sector - the Commonwealth Bank, Westpac, National Australia Bank and ANZ - of gouging loyal customers by offering them higher interest rates than they do new customers.
The commission found loyal customers were "ripe for exploitation", with one in two people still banking with their first bank while accepting interest rates on home loans up to 0.4 per cent higher than new customers.
It also found the Turnbull government and a key industry regulator had inadvertently provided a half-a-billion dollar windfall to the banking sector in their effort to cool surging east coast property markets.
Banks responded to orders from the Australian Prudential Regulation Authority to curb interest-only mortgages by raising interest rates - not just for new loans - but for all existing investor loans.
"It is completely unsurprising that faced with the opportunity to re-price their loan book as a consequence of a regulatory changes, banks did just that," the commission found.
The new ABS figures show the biggest quarterly increase in the cost of interest on a mortgage since the end of 2011.
The figures include all employees - even those without a mortgage - meaning the average interest charge rise for most mortgage holders is likely to be higher.
In contrast, mortgage interest rate repayment costs dropped by up to 5 per cent in three quarters between December 2016 and June 2017.
On Wednesday, Labor shadow treasurer Chris Bowen used the Productivity Commission's report to pressure the Coalition to reform negative gearing. The report found the policy was costing taxpayers $500 million a year alone in tax deductible interest repayments.
Treasurer Scott Morrison, who commissioned the inquiry, dismissed the report's findings.
He told question time he "did not agree" the extra interest cost of investor loans would be passed onto taxpayers.
It comes a day after Mr Morrison said he "drew upon his own experience and understanding" to dismiss advice from Treasury on negative gearing.
"The Productivity Commission's report does not take into account the fact that price growth in housing in Sydney has fallen from 17 per cent to 1 per cent," Mr Morrison told Parliament.
He said if the higher-growth environment had continued, investors would have been forced to borrow more through interest-only loans.
"If what they're saying is true then every time the Reserve Bank either decides to lift or lower the cash rate, that is somehow a tax to the taxpayer," he said.
Mr Bowen said Labor would consider giving increased powers to the Australian Competition and Consumer Commission and the Australian Securities and Investment Commission to police competition in the sector.
Commonwealth Bank chief executive Ian Narev said banks already faced intensive scrutiny over last year's move to hike interest-only mortgage rates, and defended the level of competition in the sector.
“I don’t think Australia is short of people having a red-hot look at how banks are doing in terms of implementing these kind of macrorpudential requirements," he said.
Mr Narev argued "barriers to entry" in banking were coming down, and cautioned against only looking at bank profits at this point in the economic cycle, when very few borrowers were falling behind on their loans.
CBA announced a $4.9 billion profit for the first half of the financial year on Wednesday.
The Australian Bankers Association said it would carefully analyse the 600-page report and consult its members before making a submission, while smaller enterprises welcomed the findings.
"The productivity commission report is a diagnosis of the cold hard truth," said RateCity chief executive officer Paul Marshall.
The commission found "overwhelming evidence" few consumers read or understand terms and conditions for products purchased, and "it would not be hard to conclude that a segment of the financial system is motivated to keep it that way."
“For the banking sector to be truly competitive, the system needs to be reformed so that everyday Australians can compare products quickly without needing a finance degree,” Mr Marshall said.
Customer Owned Banking Association chief executive Mike Lawrence said the draft report "was a very welcome wake-up call about the state of the retail banking market and the need to take action to promote competition".
A royal commission into Australia's financial services sector begins on Monday.
(Published in SMH : 7 Feb 2018)
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