Exit fees on the chopping block
Speculation is mounting that banks will soon remove mortgage exit fees – making it easier for unhappy borrowers to switch loans.
Up until now, borrowers have borne the brunt of higher funding costs, paying up to $900 to leave their mortgage early.
Reports today however suggest the banks will pre-empt government reforms of mortgage exit fees by dropping the charges before the corporate regulator forces their hand.
Last week treasurer Wayne Swan told journalists he was on a mission to ban the fees that were stifling competition amongst lenders.
“What we will do is make the system more competitive, give more powers to the ACCC and put in place a range of reforms to keep them honest,” Mr Swan said.
Mr Swan’s comments came off the back of the Commonwealth Bank’s move to raise its standard variable rate 20 basis points above the RBA.
At time of writing the other three banks are still yet to move, suggesting they are taking a ‘wait and see’ approach in a bid to see what their competitors do.
It is this competitive spirit between the big four which has angered consumer groups and politicians and sparked discussion around exit fees, which can thwart consumers who want to switch loans.
With as much as a 1.2 per cent difference between the variable home loan mortgage rates currently on offer, according to Loan Market CEO Dean Rushton, the freedom to change to a different loan provider could mean significant savings for borrowers who make the switch.
“The differences between lenders and the interest rates and conditions they offer have never been wider,” Mr Rushton said on Friday.
“Major lenders are offering variable rates as high as 7.7 per cent but there are rates as low as 6.5 per cent.
“On an average $300,000 mortgage, you could save around $3,500 per annum if you could have a variable rate that was 1.2 per cent lower.”
According to research conducted by Loan Market borrowers would want to see significant savings before making any switch, given existing exit charges.
The online poll of 380 people found 42 per cent of those surveyed needed to see potential savings of more than $2,000 a year before considering switching loans.