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Cuts to exit fees could damage competition

Staff Reporter 4 minute read

By: Jessica Darnbrough

There is growing concern that the government’s plan to reduce early mortgage exit fees could stifle competition rather than promote it.

Smartline’s executive director Joe Sirianni told The Adviser that any cuts to mortgage exit fees could severely disadvantage both mortgage managers and non-bank lenders.

“These lenders offer lower interest rates in a bid to compete with the majors. And by doing so, they are forced to recoup their costs elsewhere – by charging higher exit fees for example,” he said.


“If mortgage exit fees were cut or abolished, smaller lenders would be forced to hike their interest rates, which could price them out the market.”

Australian Bankers Association chief executive Steven Münchenberg told The Adviser that exit fees, as they currently stand, are fair and justifiable.

“The ABA is not concerned about the focus on exit fees per se. We feel that the fees are justifiable and the industry will be able to show that,” he told The Adviser.

“Our concern is that if we only look at exit fees and not the whole picture, well then distortions may be created.”

Mr Munchenberg said keeping up-front mortgage fees lower ultimately benefits all customers and supports customer switching.


According to Mr Munchenberg, the effect of deferring these up-front fees, for example, legal service fees, is that it reduces the cost to the customer of setting up a new loan at a time when they are incurring many other costs.

“There’s plenty of evidence that people are switching mortgages – around 30 per cent of owner occupied home loans are refinanced each year,” he said.

Last week, the government announced several key reforms to early mortgage exit fees.

According to a statement from Deputy Prime Minister Wayne Swan, from today onwards, consumers will be able to challenge early exit fees that are unfair.

“Currently, some banks are using mortgage exit fees to lock customers into their home loans. Exit fees can be so high that there is no incentive to switch to another lender, even if they are offering a substantially lower interest rate,” the statement read.

Cuts to exit fees could damage competition
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