Australia’s big five banks “synchronise” mortgage rate increases for homeowners to protect their revenue, and use difficult-to-understand mortgage terms to overcharge loyal customers an average $850 a year, according to the competition watchdog.

In a scathing review of competition in the home loan market the Australian Competition and Consumer Commission found the “opaque” pricing structure of residential mortgages makes it difficult for borrowers to shop around for the best rates, and helps protect the market domination of ANZ, Commonwealth, National Australia Bank, Westpac and Macquarie Bank.

And in a clear warning to the major lenders about their business practices, the ACCC described their approach to lifting interest rates as “synchronised” and that it reflects an “oligopoly market structure”.

ACCC chairman Rod Sims said the big four banks, in particular, benefited from difficult-to-understand mortgage prices and conditions, helping boost their profits.

“Pricing for mortgages is opaque and the big four banks have a lot of discretion. The banks profit from this and it is against their interests to make pricing transparent,” he said.

The ACCC review found the average borrower with an existing mortgage could save about $850 a year by asking their bank to match the rate offered to new borrowers. For many the savings could be far bigger, the report said.

Mr Sims also sounded a warning to the big banks about acting in concert to increase rates, citing the behaviour the competition watchdog had seen when all of the major banks lifted headline variable interest rates for interest-only mortgages in response to changes made by the banking regulator to market rules last year.

“We were not surprised banks seized the opportunity to increase prices for interest-only loans. These price rises were enabled by the oligopoly market structure in which the big four banks collectively have a market share of about 80 per cent,” Mr Sims said.

All four banks, led by ANZ, lifted interest-only rates in June last year.

“We consider that ANZ increased its rates, clear in its belief that, given the APRA limits, the other big four banks would follow its lead, and this expectation proved correct,” Mr Sims said.

He said the ACCC calculated that the rate increases by the five banks would have added, in the first year, about $1300 in interest charged to the average-sized owner-occupier interest-only standard variable mortgage.

“Such is the oligopolistic nature of banking that the banks all took the opportunity to increase rates on both new and existing interest-only mortgages, despite APRA’s measures only applying to new lending,” Mr Sims said.

That boosted bank revenue by $1.1 billion in 2018, the ACCC found.

Treasurer Josh Frydenberg welcomed the report, saying it also found the banks had not lifted rates or charges in response to the banking tax introduced by the Federal Government.