Exit fee ban might not be the answer

By webmaster 09 November 2010 | 1 minute read

The Commonwealth Bank’s move to raise mortgage rates by 20 basis points more than the Reserve Bank of Australia’s (RBA) hike last week has sparked a major push to ban mortgage exit fees to help unhappy borrowers to switch lenders – but there are warnings this could cripple competition, rather than encourage it.

Last week, Wayne Swan said he was on a mission to ban the fees, which can cost borrowers up to $1,000 for an early exit.

Meanwhile there is speculation mounting that the banks themselves may remove the fees in order to curry some much needed favour with the broader public.

But is a removal of exit fees really the answer? According to some mortgage industry commentators we should be careful what we wish for.

Go Mortgage Corporation’s Xavier Quenon told Smart Property Investment’s sister publication The Adviser (the business magazine for the mortgage industry) that exit fees are a way for non-bank and smaller lenders to compete in a tough market.

“If Wayne Swan understood anything about the mortgage market he would realise this will only decrease the competition in the banking sector,” he said.

“The big four’s exit fees are already low and this measure will not deliver much positive impact to the industry.”

E-Financial Freedom’s Boris Biskupic said banks would simply recoup the lost fees elsewhere.

“If exit fees are scrapped, then it will either result in higher application fees, higher rates, less broker commissions or longer clawback periods.”

Just whether we’ll see any changes to exit fees and policies remains to be seen but one thing remains consistent: there are alternative options to the big banks.(Banks held more than 85 per cent of mortgage market share in August, according to APRA)

Borrowers need to vote with their feet, and the competitive range of non-bank and second tier bank borrowing options currently on the market is making that more than possible.

Shop around if you’re considering taking out a home loan.  There has never been a broader spread between the different interest rates on offer for borrowers, according to Loan Market Group analysis.

“Major lenders are offering variable rates as high as 7.7 per cent but there are rates as low as 6.5 per cent,” Loan Market CEO Dean Rushton said last week.

Exit fee ban might not be the answer
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