Criticism of lenders who charge deferred establishment fees (DEFs) for early loan repayment looks set to intensify in the wake of the latest RBA rate rise.
Federal Treasurer Wayne Swan has urged borrowers to “vote with their feet” if they are unhappy with their banks, promising action to improve competition by making it easier to switch lenders.
But abolishing establishment fees is ultimately likely to result in more pain for borrowers according to Ian Grant, managing director and CEO of First Permanent.
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“If deferred margin fees were to be removed or reviewed, lenders would simply have to load it onto the headline rate of interest,” he said.
“The borrower would be hardest hit and brokers would be left with the job of selling loans at a higher interest rate.” Mr Grant estimated that lenders would have to increase their rates by as much as 0.25 per cent to recoup any shortfall, piling more pressure onto borrowers.
MFAA CEO Phil Naylor is also concerned by the criticisms being lobbed at the industry, describing the attacks as a ‘PR’ approach to encourage more freedom for borrowers.
“Different lenders are exploring different options to be competitive in the current environment,” he said.
Mr Naylor said while the Government had no power to change fee structures he was concerned that fees were consistently being identified as the central problem for borrowers.
Mr Naylor said borrowers needed to be educated to look at the whole loan product in the current lending environment. “It’s misleading to look at either fees or interest rates in isolation,” said Mr Naylor.
