Bank ‘greed’ on home loans called out

Members of the broking industry have called out bank ‘greed’ – after new research from The Australia Institute revealed that the big four banks are making $200,880 in profit on the average 30-year home loan for owner-occupiers.

The Profit in home lending report was undertaken by the public policy think tank to ascertain “whether there is price gouging in the big four banks and whether the banks are contributing to cost-of-living pressures”.

Overall, the report found that the big four banks (ANZ, CBA, NAB, and Westpac) make approximately $9,130 in profit in the first year from households with an average owner-occupier home loan (of $574,200, the average for the six months to July 2024, according to the Australian Bureau of Statistics).

Over the life of an average 30-year loan, this equates to $200,880, or almost 35 per cent of the average mortgage, the report found.

Indeed, The Australia Institute said that the majors made aggregate pre-tax profits of $44.6 billion, making around $17.6 billion profit from households with owner-occupier home loans in 2023–24.

It said that profit on owner-occupied home loans represented 39.5 per cent of the big four’s total profit, despite these mortgages being just 24.6 per cent of their assets.

“This report highlights that a lack of competition among the big banks has come at the cost of homeowners,” said Greg Jericho, chief economist at The Australia Institute.

“The big four are generating massive profits from home loans that far exceed the level of risk the banks undertake.”

“The 13 interest rate rises have been great for banks and terrible for homeowners who are having to pay for inflation that was driven largely by corporations like banks increasing their profits,” said Matt Grudnoff, senior economist at The Australia Institute.

Reacting to the data, Peter White AM – the managing director of the Finance Brokers Association of Australasia (FBAA) – said that while he “understands that banks exist for their shareholders” he added that they are “indisputably making massive profits for their shareholders”.

“When profit becomes greed at the expense of consumers it’s time for this to be called out,” he said.

He said that the profit margins of the bank are also particularly high as they benefit from clawbacks.

White said he was also concerned that banks have been reintroducing high substantial bonuses for bankers for selling home loans, adding he believes “some banks want to return to the practices of the bad old days and ignore the findings from both the Sedgwick report and the Hayne royal commission.”

He said that he believes various banks had been attempting to “undermine the broking sector for their own gain”, including by releasing direct-only mortgage offerings that are cheaper than other channels.

“If this is the case, it’s a short-term and quite stupid strategy considering what the broking sector delivers to lenders and consumers,” he said.

“There also becomes a point where you hear banks crying foul, saying that we’re going to focus on proprietary channels, not broker channels, or that maybe we need to review broker remuneration, but you think that with 74 per cent of home loans coming from broker, you’d look after those that are distributing your product for you that’s making you a tonne of money.

“The banks always want to try and make things difficult, whether it’s channel conflict issues, whether – like in more recent times – it’s the big cash incentives and the crazy discount rates, are that the back book pricing is about 80–100 basis points more. So that’s misleading. It’s deceptive.

“All these things start to come back to the erosion of competition in the marketplace in some shape or form or another. So, we need to protect that.

“I think it’s time government and regulators stepped in and had a much closer look at this, because you can see now through this data [that] they’re making a lot of money off the back of brokers who they continue to want to stab.

“I’ve said this before, but the banks would love less competition like they had in the past, but the world has moved on and Australian consumers will never stand for that.”

I agree with what Peter White has said above. Whilst working at both NAB and Westpac, we were instructed that the cost of writing a home loan was approx. $3,000- in the first 12 months. Any serious pricing discretions requested had to take that cost into consideration. But I am not surprised by the profit they make over a 30-year loan term, It does prove clients need to shop around at least every three years.

And that was what my very first bank boss told in January 1980. Ron said customer should look at changing every three years. Year one the bank will woo you and fall in love with you. Year two is your honeymoon. Year three and the relationship becomes rocky.

So, I found it interesting that all 4 majors have all made comments in the past month about how they wish to source their home loan business in the next 12 moves. CBA and NAB, have announced they will aim to increase the volume from their branch and internet sales team so as to reduce their reliance on brokers. I can’t wait to see how they propose to do this given brokers currently write over 70% of all home loans. Westpac and ANZ are going the other way and looking to increase broker generated loans.

With uncertainty over when rates might fall, coupled with possible Trumpflation and no guarantee banks will pass on the full rate cuts, 2025 will be interesting.

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