Wild profit banks making on your mortgage revealed

The big four banks are profiting a huge $200k off the average Aussie mortgage by charging higher than neccesary interest rates, new research has found.

Australia’s big four banks pocket more than $200,000 profit on the average Australian home loan.

New research by the Australia Institute shows a lack of competition among the big banks has come at the cost of home owners.

According to the thinktank the big four banks made $17.6bn from owner-occupier loans in 2023-2024 out of a total pre-tax profit of $44.6bn.

Australian Institute senior economist Matt Grudnoff said mortgage holders, particularly new ones, were bearing the brunt of the cost-of-living crisis due to higher interest rates banks are charging customers.

“The ABS releases what are called selected cost of living, where they create households and one of them is an employee household with a mortgage. The current inflation rate for that household is above 6 per cent still due to the rapid rise in interest rates and that is the kind of pain that could be relieved by more competition,” Mr Grudnoff said.

“We think it is the government’s role to fix this market failure and lack of competition and work hard in the banking sector to get more competition into the market.”

The big four banks are cashing in on a lack of competition in the market. Picture: NewsWire

Australia Institute research shows the big four banks profit by $9130 in the first year from households with an average owner-occupier home loan.

For the first year of the loan, the average Aussie will give the banks $761 each month or $176 per week straight to the bank’s bottom line.

Over the average 30-year home loan, that amounts to $200,880 or 35 per cent on the average $574,2000 home loan.

While acknowledging that APRA says Australia has 141 authorised deposit-taking institutions,

Mr Grudnoff said the policy backdrop favoured the big four banks, with the sheer size of them dominating these smaller players.

“What is really needed are stronger competition laws and divestiture powers to break up the big banks to bring more competition into the market,” he said.

The Australia Institute also found that customers were not switching providers for a better deal, which could cost them thousands of dollars over the life of a loan.

Mr Grudnoff said inertia to change banks and thinking it was only a small percentage difference was leading to massive profits for the big four.

Aussie bank customers are losing out on $200,000 over the life of the average home loan. Picture: NewsWire / Nicholas Eagar

“People tend to get a mortgage with who they bank with because Aussies think if they get a mortgage with a bank, they have to do all their other banking with them,” he said.

“They also fall into the trap of thinking it is only a small percentage difference. While it might seem like a tiny amount, it is a massive difference on $100,000 mortgage.” he said.

“We’ve been telling Australians for years to shop around and the big four banks are still super profitable and still gouging their customers, so there needs to be reforms to fix this.

“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.”