No competition in Australia’s big four banks

As the big four ‘s decision on their stance regarding the Reserve Bank of Australia’s interest rate cuts becomes known to the public, one research centre suggests that the competition between the big four banks is actually just a “joke”.

A new report from The Australia Institute, The rise and rise of the big banks – Concentration of ownership, stated of a common ownership of the big four banks and the degree of common ownership seriously challenges the idea that the big four are engaged in fierce competition. Accordingly, the “examination of the top 20 shareholders in the banks’ annual reports shows that, on average, over 53 per cent of each big bank is owned by shareholders that are among the top 20 shareholders in all the big banks. Moreover, ownership figures for the second tier banks, the big three regionals – Bendigo and Adelaide Bank Limited, Suncorp-Metway Limited and Bank of Queensland Limited – show they are also owned by the same organisations that own the big four.”

Australia’s banking industry is one of the most profitable industries in the world and the big four banks apparently belong to the eight most profitable banks in the world. The common ownership of the major banks is something to worry about as the potential to further profits is always present and make them act more like a monopoly going after a common goal.

The major banks however dismiss the allegations claiming that despite the profits, the money still goes back to ordinary Australian shareholders as dividends despite the fact that more than 90% of Australians do not directly own share. Senior research fellow, David Richardson, said, “The big four banks make more than $1,460 profit from every man, woman and child in Australia. They argue that these profits flow largely to mums and dads with superannuation, but our analysis calculates that the average superannuant gets just $142 per annum.”

With home loans alone, research claimed that “the cheapest of the big four banks was a good deal more expensive than many individual mutual banks, credit unions and building societies and was more expensive than the average of those institutions by 40 basis points. If the present interest rate differential were to persist over time then the average mutual bank, credit union and building society customer would save $7,163.76 over the life of the loan for every $100,000 they borrowed. That is the equivalent of $23.87 per month.”

It seems that the competition bankers talk about is their competition for customers as they spend huge amounts on advertising and designing new products and processes. They avoid price competition by “making financial products look very complex so that consumers find it difficult to compare prices between sellers” or “promote different ‘brands’ despite being owned by the same parent company, in part to attract customers who ‘do not want to bank with a major bank’.”


Green credentials ‘important’ when buying a new home

Anyone who is thinking about purchasing a new home may wish to take its green credentials into account, as these can improve its value over time.

Gordon Miller, co-founder and sustainability and communications director of advocacy membership group Sustain Worldwide, remarked that there is an “inherent value premium” in sustainable property, particularly over the long-term.

He commented that new-build properties with green features tend to be less expensive to operate, as they are better-insulated, require less cooling and heating, and may even be fitted out with energy-efficient appliances for further savings.

“What’s more, they will increase in value faster – or depreciate less than existing homes – because they are more future-proofed than a conventionally-built existing house that will require expensive retro-fitting,” Miller explained.

However, there are several other essential factors you must consider when planning a new property purchase.

Sydney Morning Herald writer Chris Tolhurst asserted earlier this month that before you apply for a new home loan, it is essential for you to carry out plenty of thorough research.

He pointed out that most property investments achieve good capital growth after a period of at least seven to ten years, so it is best to approach your decision with the long-term in mind.


Consider pets when buying a home

If you are planning a move to a new house, obvious considerations you will want to think about before you apply for a home loan include whether or not the size of the property will suit your family, location and proximity to amenities.

But one expert suggests that family pets should not be overlooked when planning a move to a new house or apartment.

Urban planner Virginia Jackson told the Sydney Morning Herald that cat and dog owners need to consider the needs of their four-legged friends when choosing a new home.

In addition to providing a comfortable, well-ventilated space for pets, Jackson advises that there are a number of things for prospective homebuyers to look for when choosing a new property.

For example, cats may require a space with climbing opportunities so they can look around rooms and see what is going on, while dog owners may prefer windows with double glazing or thickened glass, which can help muffle barking and other sounds.

And while hard flooring is cool on paws and more resistant to odours than carpets, it may be too slippery for older animals.

Once you have found the perfect pet-friendly property, you may wish to speak to a mortgage broker about the best home loan options to suit your family’s budget.


Put your money on your mortgage

The best thing to do with spare cash is to put it towards paying off your Sydney home loan more quickly, according to financial planning experts.

Making additional mortgage repayments is the best way to put yourself in a better financial position

Andrew Heaven of AMP told the Sydney Morning Herald: ”You can’t save and have debt at the same time.”

Putting money on the mortgage has the benefit of low investment risk, low costs and the effective investment returns will beat just about anything else on the market, he said.

Financial planner Greg Pride agreed: ”To generate an after-tax return of seven per cent you would need a ten to 12 per cent return elsewhere to beat knocking out the mortgage,”.

He explained that putting $5,000 into your mortgage redraw or offset account is effectively earning an after-tax return equivalent to your home loan interest rate.

Mr Heaven also recommended creating an offset account tied to the mortgage if you do not want to tie up the money in the home loan directly.

One suggestion is to have your pay go straight into the offset account to save interest- the money in the account reduces the balance of the mortgage on which interest is calculated.


Clear credit file vital for home loans

The information on your credit file could affect your ability to get a new home loan, but three-quarters of Australians don’t know what it is, according to a survey by a consumer credit bureau.

Only 15 per cent of respondents could correctly describe a credit file, the study conducted on behalf of Veda Advantage indicated.

Your credit file is a detailed record of your credit history over the past seven years. As well as your personal details it contains information on any defaults, overdue accounts or bankruptcy rulings.

It will be updated every time you apply for new credit and record whether or not that application is approved. A credit file can include something as simple as an overdue bill left unpaid for more than 60 days.

Veda Advantage holds credit files on more than 14.5 million Australians and head of external relations Chris Gration told the Sydney Morning Herald that the state of your file can affect everything from your ability to have a home loan approved to getting an internet connection.

He recommends people check their credit file annually – and certainly at least a month before making any credit application. Defaults generally stay on file for up to five years.

”By obtaining a copy of your personal credit file you’ll know what financial institutions and other credit providers are looking at,” Mr Gration said.

”That way you can be ready to answer any questions that might arise from your credit file.”

The survey revealed that only four per cent of respondents requested a copy of their file in the past 12 months.


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