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Australia’s largest independently-owned mortgage broker, Mortgage Choice strongly supports today’s Senate economic references committee recommendation that the Federal Government reconsider its plan to abolish exit fees on new home loans.

Non-bank lenders, which are vital to the health of a competitive lender market, raise funds at a higher cost to their banking counterparts and lack the same economies of scale. As such, exit fees are brought in to recover their reasonable costs should a loan be discharged early.

ASIC recognises this and made clear in November 2010 what it regards as a reasonable exit fee and what it regards as unconscionable. Mortgage Choice continues to support the guidance paper issued by ASIC at the time (Regulatory Guide 220).

The national mortgage broker lobbied the government last year to cease moving ahead with a home loan exit fee ban. In doing so, CEO Michael Russell wrote to Treasurer Swan:

“A unilateral ban on exit fees will have the unintended consequence of actually reducing lender competition by damaging the competitive offering of non-bank lenders and some second tier banks. These lenders have up until now only been able to compete on price by deferring or back-ending certain establishment fees. If this option is removed, then by default they would need to increase their customer interest rates and/or ongoing fees. The major banks would then be sure to follow or perhaps wait until the non-banks suffocated.

Mortgage Choice supports the guidance paper issued by ASIC (RG220) endorsing exit fees that represent a reasonable recoupment of costs upon the early termination of a loan. Smaller lenders would then be able to continue to compete on upfront interest rates and fees. As previously mentioned, and as you are aware, greater competition will deliver improved product innovation, pricing and service.

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.

The decline in competition will hit mortgage holders hard where it counts most – interest rates and fees and most importantly future product innovation and customer service.”

A consumer champion that has written home loans for over 300,000 Australians, Mortgage Choice stands by these statements in calling for a reversal of the decision to abolish home loan exit fees.

Visit MortgageChoice.com.au or Twitter.com/MortgageChoice.

Tags: banks, economy, fees, finance, mortgage, proeprty, research

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