The Australian Securities and Investments Commission (ASIC) has released a new set of guidelines on lenders’ mortgage exit fees which should, in theory, reduce the cost for borrowers on moving between lenders.
The new lender practices expectations, released yesterday, follow just over a week of intense debate that borrowers should be free to move between lenders following the Commonwealth Bank’s decision to hike its mortgage rate over and above the increase of the Reserve Bank at the beginning of the month.
The new guidelines set out which types of costs and losses may be able to be included in an exit fee, and those which cannot.
ASIC chairman Tony D’Aloisio said he expected that lenders would move to review their practices to ensure they comply with the new guidelines. In addition, Mr D’Aloisio said ASIC would be challenging lenders whose fees were exceptionally high.
“The law limits these fees to the recovery of a lender’s loss caused by the early termination,” he said.
“Lenders cannot use exit fees to discourage a borrower from switching their loan or to punish them for doing so.”
ANZ has already moved to eliminate its $700 exit fee.
While the increased scrutiny on early termination fees appears to be good news, there is scepticism that amplified pressure on exit fees – or even the withdrawal of them – will do much to stimulate competition for borrowers.
At the end of the day, it is up to consumers to improve competition. The best home loan deals can be found by shopping around – or bargaining with lenders and threatening to move unless they offer you a better deal.
All lenders face, to a degree, the same funding costs. And while the Commonwealth Bank and now ANZ, might decide to increase their home loan rates to reduce the pressure higher funding costs place on their profits, many lenders won’t. It all comes down to profit margin and just what margin lenders are prepared to run with.
Many smaller and non-bank lenders, who do not have shareholders to please, are offering much lower interest rates than the big banks, so if you’re in the market for a home loan, make sure you shop around.
In any case, if you’re well versed on the market’s various offerings, you’ll have a much stronger bargaining tool when it comes to dealing with your existing bank.