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Scrapping DEFs won?t help borrowers, brokers

Staff Reporter 2 minute read

Criticism of lenders charging deferred establishment fees for early loan repayment looks set to intensify should the anticipated RBA rate rise be confirmed tomorrow.

Federal Treasurer Wayne Swan has urged borrowers to “vote with their feet” if they are unhappy with their bank, promising action to improve competition by making it easier to switch lenders.

But the abolishment of establishment fees is ultimately likely to result in more pain for borrowers according to Ian Grant, managing director and CEO of First Permanent.

“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,” he said.

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Mr Grant estimates lenders would have to increase their rates by as much as 0.25 per cent to recoup any shortfall, piling more pressure on 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.

Whilst Mr Naylor plainly stated that the Government had no jurisdiction to change fee structures he was concerned by the polarisation of fees as a central problem to borrowers.

“It’s misleading to look at either fees or interest rates in isolation,” said Mr Naylor, who believes that borrowers need to be educated to look at the whole loan product in the current lending environment.

Published: 04-02-08

Scrapping DEFs won?t help borrowers, brokers
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