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Jessica Darnbrough
Removing mortgage exit fees will cripple competition rather than create it, brokers have warned.
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The Australian Securities and Investments Commission is expected to this week release guidelines on how it will enforce rules to penalise lenders for charging “unfair” mortgage exit fees.
The reforms come amid a regulatory crackdown on the banking sector, with Westpac chief executive officer Gail Kelly yesterday announcing that she would be happy to attend at the Senate Economics Inquiry on Competition in banking.
“This is important work needing cool heads and considered conversation,” Ms Kelly said.
Last week, Treasurer Wayne Swan said the reforms to exit fees are being planned to make it easier for borrowers to switch banks and boost competition in the mortgage industry.
However, many brokers believe competition will not be helped by these new reforms.
Go Mortgage Corporation’s Xavier Quenon said exit fees are a way for non-banks and smaller lenders to compete in a tough and price sensitive market.
“If Wayne Swan understood anything about the mortgage market he would realise this will only decrease the competition in the banking sector. The big four’s exit fees are already low and this measure will not deliver much positive impact to the industry,” Mr Quenon told The Adviser.
“Sounds like the blind leading the blind.”
Mr Quenon’s comments were echoed by E-Financial Freedom’s Boris Biskupic who said removing exit fees would not help competition.
According to Mr Biskupic, if the banks are forced to remove their exit fees, they will ultimately recapture these fees somewhere else.
“If exit fees are scrapped, then it will either result in higher application fees, higher rates, less broker commissions or longer clawback periods,” he told The Adviser.
“We know what banks are like. Further to this, the churn rate for loans will be higher due to refinancing and potentially decreasing what are already considered unacceptable service levels.”
