The Federal Government is determined to ban exit fees despite being told that the decision will stifle competition between lenders, an industry figure has revealed.
Last week, Peter White, president of the Finance Brokers Association of Australia (FBAA), spoke at the Senate Inquiry into Banking about the impact the government’s proposed blanket ban on exit fees would have on competition.
“I told them, just like a lot of people before me have said, that banning exit fees will hurt Australia’s smaller lenders and negatively impact competition in the mortgage space,” Mr White said.
“But it seems the government is determined to push ahead with its proposed ban.”
Mr White said if the government really wanted to stimulate competition in the mortgage space, they would make Lenders Mortgage Insurance (LMI) portable.
“If LMI was portable, it would make it easier for consumers to move between lenders. A $700 exit fee really does not stop anyone from switching banks,” he said.
“I have no problem with exit fees, so long as they are fair and reasonable, but I do have a problem with LMI. There is no reason why this should not be portable.”
Currently, property buyers with LMI, which is required should they borrow more than 80 per cent of a property’s purchase price, need to take out a new policy in the case that they switch lenders.
When asked whether or not the government would try to enforce portable LMI, Mr White said they would be “ignorant if they didn’t”.
Mr White is expected to front the Inquiry again within a few weeks.