Hi all,
What does all the noise about exit fees mean for home loans. Will their abolition be good for competition or will it put the Big 4 in a position to 'monopolise' the market and sell us more expensive products?
Also, are deferred establishment fees considered part of the exit fee or are they on top of an exit fee?
Many thanks,
Andrew
itsandrew
Go as far as you can see and you will see further.
If they minimise or abolish exit fees people will be more able to change banks. People at the moment are reluctant to change when they are unhappy with service, rates etc. Banks know this so don't fear losing customers.
This will make for better competition among lenders.
Establishment fees are an entry fee not an exit fee. If you delayed paying them you still owe them.
itsandrew,
You're right – If smaller lenders are forced to cut early exit fees, they will need to bump up their rates to compensate. Therefore possibly making their rates higher than the Big 4.
It takes at least a year for a lender to start making money on a loan they have provided due to the costs associated with setting it up. If the customer leaves the lender before they've started making money on the loan, they'll charge horrendous fees to compensate for lost income (they've budgeted to earn a certain profit on a loan, so if the loan disappears, they still make a profit). This is how the smaller lenders have managed to offer great rates.Make no mistake……….the Big 4 aren't called the Big 4 for nothing………they'll never lose.
Whilst they appear higher at the moment, that will change as soon as the exit fees are abolished.I'm just thinking it will push rates up and kill any competition smaller lenders can provide. I have seen some posts on this forum highlighting obscene exit fees of some smaller lenders but these break cost scenarios must surely be known prior to signing a contract?
So I suppose what I am getting at is that from my viewpoint abolishing exit fees will hurt small lenders ability to offer competitive products and thereby reduce the competition the Big4 face.
Andrew
itsandrew
Go as far as you can see and you will see further.
A large majority of small lenders pay mortgage insurance for all loans – even if only lending 10%. Banks usually only insure over 80%.
To remain compeititive smaller lenders only pass on the insurance cost over 80%. They absorb the cost for loans under 80%.
To date ASIC is indicating they will allow lenders to recover costs – but not charge penalties.
For loans terminated early; banks will “claw back” broker commission and don’t pay for their mortgage insurance – therefore have no costs to recover and are abolishing exit fees.
Smaller lenders will still recover their costs e.g. Broker commission and mortgage insurance from the customer. Most dont “claw back” broker commission.
In some cases a small lender will now charge more than $10,000 versus nothing from the banks.
This is nothing new. Problem is the government is exposing the banks for offering a lowest exit fees in Australia. Like normal they did not do their homework and by default – exposed the huge and often non disclosed cost smaller lenders.
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