Do you know what interest rate your neighbours pay on their mortgage?

What about the person down the street, or in your suburb?

What if you could?

On Monday, Treasurer Josh Frydenberg announced the Australian Competition and Consumer Commission (ACCC) will hold an inquiry into why the Reserve Bank's rate cuts are not being passed on in full by the major banks.

The official cash rate is at a record low of 0.75 per cent and may be heading into negative territory.

The inquiry aims to shine a light on how banks set residential mortgage rates, whether they gouge consumers with a "loyalty tax" (where discounts are offered to new customers while longer-term customers pay more) and what major barriers exist to discourage customers from switching banks.

While it will look at pricing across the entire residential mortgage market, as revealed in talking points prepared for Prime Minister Scott Morrison that got accidentally emailed to media on Monday morning, "the big four banks will be a key focus of this inquiry, given they hold around 75 per cent of residential mortgage debt".

The Government has said it wants to see consumers get a better deal.

If the Morrison Government really wants big banks to pass on rate cuts to consumers, it needs to arm the public with the tools to easily compare actual bank rates and make it easier for them to switch banks.

This was among the key recommendations in the Productivity Commission's recent review of Australia's financial system, the findings of which Mr Morrison has had in his possession for more than a year (he was treasurer when the review was handed down).

While the banking royal commission focused on issues of misconduct within the sector, this review gives Mr Morrison and Mr Frydenberg a roadmap for how to specifically deal with issues of pricing in the mortgage market.

One of the suggestions was for the Government to set up a mortgage-rate calculator that allows mortgagees to see how their rate compares with other actual rates in the market.

"The absence of a genuine, real-time benchmark against which to judge the deal offered to you by a bank branch or a mortgage broker is characteristic of a flawed market," its review said.

It said this "opaque pricing" is a significant factor in keeping consumers unsure of their position and dependent on mortgage brokers who are also often not able to offer a full range of products.

Major banks hold pricing power

As it stands, the major banks hold pricing power.

They are, as the Productivity Commission noted, able to charge higher premiums above their marginal costs, compared with other institutions.

It said about half of the average loan price that major banks charge is estimated to be a premium over the marginal cost — double the margin other Australian-owned banks have and well above that of banks in other high-income countries.

The reality is the Government cannot force the banks to change their prices.

Mr Frydenberg has already ruled out introducing legislation to force the banks to pass on the RBA rate cuts in full.

And the big four banks are businesses operating in a free market that are legally entitled to pass on as much or as little of the RBA cuts as they like.

But this does not mean the Government has no levers to pull to create conditions that ensure the market remains competitive.

It also needs to ensure consumers are protected by properly policing the sector.

When the banks behave badly — which, as we saw via the royal commission, is all too often — there need to be consequences.

If the market was more competitive, keeping prices high in order to deliver profits would cause a significant number of consumers to switch.

As the Productivity Commission observed: "It is, at least in part, the stickiness of consumers with their current bank, insurer or adviser that allows these providers to maintain profits without loss of market share."

How a new mortgage calculator could help

To hand back more power to consumers, the Productivity Commission suggests making actual home loan interest rates, and the discounts offered on the standard variable rate, publicly available.

It is a move the major banks have long resisted, with many of them telling the Productivity Commission that such a comparison calculator could be "misleading".

But as the commission stated in its review, something that tells the public "what borrowers negotiated last month" is far less likely to mislead than the current standard variable rate that bears little resemblance to actual rates offered to borrowers.

At the moment, it's hard for a consumer to know what rate they are being offered until they are well into the application process.

Home-loan packages often bundle home loans with other financial and credit products, such as offset accounts and credit cards.

The review pointed out there are nearly 4,000 different residential property loans on offer and more than 250 different credit cards.

It suggested the Government establish an online calculator that goes well beyond the current comparison websites that have limited information.

This mortgage calculator would include the postcode/suburb of the property being purchased.

It would also indicate the security being offered by the consumer against the loan, such as the ratio of the loan sought relative to the property value.

Consumers would be able to see the market median interest rate offered to all home-loan borrowers in similar circumstances to them.

Why the ACCC has been chosen as the 'champion'

The Government has deliberately chosen ACCC boss Rod Sims to head its latest inquiry over other regulators.

The Productivity Commission had noted in its review that when it comes to the mortgage market, consumers need a "competition champion".

Corporate watchdog the Australian Securities and Investments Commission (ASIC) and prudential regulator the Australian Prudential Regulation Authority (APRA) copped enormous reputational damage during the banking royal commission for being toothless tigers.

But as the review notes, the ACCC is a "natural fit" for the competition-champion role in the financial system.

There is no legislative change required for the ACCC to take on such a role.

More importantly, the ACCC had "enthusiasm for the role", the Productivity Commission said in its review, possibly implying the others did not.

Greater transparency over mortgage rates, and an eager regulator with greater powers to ensure consumers are given a better deal, would perhaps be more useful than another inquiry.