Exit fee recommendations draw praise

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Mortgage industry heavyweights have been quick to praise the Senate Economic References Committee’s call for a rethink on the banning of exit fees.

The Senate Committee’s recently released Competition within the Australian banking sector report has recommended that the Government should properly assess the November 2010 ASIC guidelines on exit fees before going ahead with ban – or at least exempt small lenders from the ban.

"The Committee heard the submissions and formed the view that banning exit fees would hurt small mortgage lenders," said Mortgage & Finance Association of Australia (MFAA) chief executive Phil Naylor. "It was small and non-bank lenders who made mortgages so competitive in the decade to 2006."

He went on to point out that non-banks have since been hit hard by the global financial crisis, with their share of the mortgage market dropping from 13.6% before the GFC to just 1.9% in February this year, according to ABS figures.

"The deferred establishment fee brought down the margin on home loans for thousands of Australians," said Naylor. "Lenders such as Aussie and Wizard used the deferred establishment fee to reduce mortgage costs and compete with the banks. We call on the government to implement these recommendations."

Mortgage Choice added their voice to the call for a rethink on exit fees, reiterating the comments made by CEO Michael Russell when he wrote to Treasurer Wayne Swan last year:

“Should the Gillard Government unilaterally ban exit fees, then it will unwittingly hand over on a plate the heads of the non-banks to the major banks. Why? They are reliant upon this fee to be able to remain competitive at the front end, where real competition counts for the consumer,” he wrote.

Banks too have praised the Committee’s recommendations, with ING Direct CEO Don Kochstating that the report’s key recommendations correctly focus on funding, and would result in lower interest rates.

“If adopted, ING Direct would drop home loan rates by 10bps [0.1%] immediately and potentially more as the changes filter through,” he said, adding that the abolishment of interest withholding tax would also open up new fundingsources for banks.

“A critical driver for competition is a level playing field for funding and these recommendations gosome way to addressing the current imbalances,” he said.

Australian Banking Association (ABA) chief executive Steven Münchenberg added that the report had correctly pinpointed competition as the best means of protecting consumers’ interests, rather than further regulation.

“The ABA strongly supports the initiatives and recommendations to reduce the barriers of entry for new entrants into the financial services markets and strengthening the role of smaller and international banks,” he said.

“We recognise these new initiatives build on proposals introduced by the Federal Government in December 2010 when it announced its competition package.”

Will the Senate recommendations benefit investors and homeowners, or play into the hands of greedy lenders? Join the debate at www.yourinvestmentpropertymag.com.au

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