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Treasurer Wayne Swan’s banking reforms have been all over the news but just how much they will benefit borrowers still remains unclear.
After much hype, the Gillard government announced its plans for a “competitive and sustainable banking system” on Sunday.
Key among the measures announced, which aim to provide a “better deal for consumers”, was the banning of exit fees on all new home loans from July 1 2011.
Other measures announced included further support to help credit unions and building societies create a ‘fifth pillar’ in the banking system, an extra $4 billion investment in residential mortgage backed securities (RMBS) and tough new laws against price signalling.
In explaining the new plans, Mr Swan said: “We've worked carefully and methodically with our financial regulators to develop a package of reforms that will be effective and enduring, and won't let the big banks off the hook.”
“There's no silver bullet here – the challenges flowing from the global financial crisis can't be solved overnight – but we'll keep working hard to give all Australians a fighting chance.
“Vigorous competition is the best way to keep interest rates for borrowers lower over time and create a system that offers real choice.”
But Mr Swan’s measures have received a lukewarm welcome – at best, with financial analysts and mortgage industry figureheads labelling the plan “huff ‘n’ puff” and “disappointing”, among other things, and unlikely to deliver increased competition.
If indications from the stock exchange were anything to go by, it appears the reforms will do little to challenge the big banks’ market share. Share prices of the major banks all closed higher yesterday off the back of the announcement, adding more than a combined $3 billion in value.
Indeed, the banning of exit fees is being widely touted as an advantage for the big banks, with the fees traditionally falling in the domain of the smaller non-banks.
These lenders implement such fees as a way of managing the cost of funding home loans should consumers look to exit the loan earlier than agreed to.
“Removing exit fees will only hurt non-bank lenders – it will render them uncompetitive, which defies exactly what the package intends to do,” Tim Brown, incoming CEO of wholesale mortgage brokerage Vow Financial, told First Property Buyer earlier this week.
According to Mr Brown the government competition package will only help move the profits “around the big four”.
When it comes to actually securing the best home loan deal, consumers can simply mitigate most concerns by taking the time to one, shop around, and secondly, taking the time to read the fine print and understand exactly what your loan arrangements are.
If you’d prefer some assistance and guidance, a mortgage broker is the perfect place to look. They can do all of the shopping around for you, and will also ensure you know exactly what your loan commitments, obligations and rights are, now, as well as into the future.