Exit fee win rules ‘could hurt borrowers’
Stephen Johnson | AAP | November 11, 2010 http://www.news.com.au/money/banking/exit-fee-rules-could-hurt-borrowers/story-e6frfmcr-1225951306248 Home loan borrowers could have potentially less choice in the mortgage market and face higher interest rates following the release of new rules to crack down on costly exit fees. The warning came as the ANZ yesterday abolished its mortgage exit fee while also increasing its standard variable rate by 14 basis points above the latest Reserve Bank rate increase. The Australian Securities and Investments Commission (ASIC) has indicated it will focus its efforts on the highest exit fees in the market. But the big banks are the least likely to be affected by the corporate regulator’s crackdown, following ASIC chairman Tony D’Aloisio’s challenge to lenders to justify the true costs of ending loans early. Smaller, non-bank lenders, who charge higher exit fees, are more likely to lose out, potentially robbing home borrowers of choice. One Victorian-based non-bank lender charges consumers $7300 to leave a loan within the first three years while other small players ask upwards of $4000. By comparison, the Commonwealth Bank charges a $700 exit fee, while Westpac and NAB demand $900 for the right to switch to another lender. The end of exit fees may also simply lead to higher interest rates, warned business commentator Terry McCrann. He said most borrowers are not impacted by exit fees because most don’t pay their loan bank in the early (3-5 years) time frame in which they generally apply. He said that banks may substitute this lost fee with a slightly higher interest margin to cover “the very real costs which those fees cover”. ANZ hikes its rate ANZ’s yesterday said it would raise rates on its standard variable home loans by 39 basis points, which is way above the Reserve Bank’s 25-basis-point move. Borrowers on an average $300,000 mortgage with ANZ will now be paying an extra $76 a month in repayments, thanks to the bank’s decision to join the Commonwealth Bank in thumbing its nose at battlers. Finance Minister Penny Wong said the move was unjustified. But shadow treasurer Joe Hockey said the ANZ rate rise had made a mockery of the federal government’s warnings to banks. “Just to kick sand into the eyes of (Prime Minister) Julia Gillard, the ANZ increased their rates and then made it easier for people to leave the ANZ. They did this because they know there just isn’t enough competition in the Australian banking system,” he told reporters in Melbourne. Mr Hockey said the ASIC rules were a disappointment to voters, who were promised a silver bullet on exit fees. The Australian Bankers’ Association said the ASIC rules would force banks to review all exit fees on new and existing mortgages. “The ABA has always argued that mortgage exit fees are based on legitimate costs incurred by banks and this has been recognised by ASIC,” chief executive Steven Munchenberg said. Lenders would also be banned from increasing exit fees on standard variable loans after a borrower had entered a contract, and they would be obliged to explain the charges more clearly. The rules clarify legislation enacted in July. |
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