Mortgage exit fees a rort for borrowers

BORROWERS are set to benefit from increased competition following the release of a review of mortgage exit fees.

Mortgage exit fees a rort for borrowers

BORROWERS are set to benefit from increased competition following the release of a review highlighting the differences in fees on the various mortgage products offered by lenders.

The Federal Government has released details of a review of mortgage entry and exit fees which it says will help boost competition in the banking sector and make it easier for unhappy borrowers to switch lenders.

Federal Treasurer Wayne Swan said the results of the review, conducted by the Australian Securities and Investments Commission (ASIC), highlighted the importance of ensuring banks and other lenders face as much competitive pressure as possible.

"The release of the review is another milestone in the implementation of the account switching initiatives I announced in February to boost competition in the banking sector," Mr Swan said.

The ASIC review is part of efforts to foster a more competitive banking system "that works for Australian families, not against them", he said.

"We want the banking system to offer families a real choice of financial products, including on the important issue of the level of fees and the services provided."

Data provided to ASIC as part of the review suggest mortgage fees in Australia have risen considerably in recent years.

The data show that in the period between 1995 and 2007, the total annual fee take against the average Australian mortgage book increased from 0.67 per cent annually to 1.39 per cent.

The early termination fee take as a proportion of overall fees, meanwhile, increased from 19.31 per cent to 41.83 per cent.

The data also shows that early termination fees are highly prevalent, with 94 per cent of home loan products offered by the big banks attracting an exit charge.

The exit fees are a major impediment to customers who want to switch loans as they can cost thousands of dollars.

The ASIC review identified one variable loan product that charges an early termination fee of $5685 on a mortgage of $250,000, representing 2.27 per cent of the total loan amount.

The review also identified a basic loan product that charges an exit fee of $7580, also on a mortgage of $250,000, representing 3.03 per cent of the total loan amount.

Early termination fees are more than four times higher in Australia than in the United Kingdom or the United States, the data shows.

Mr Swan said the government understood there was widespread concern in the community about various aspects of the mortgage industry - including the conduct of mortgage brokers and the level of fees charged on mortgages.

"That's why last week the commonwealth and states reached a historic agreement at the Council of Australian Governments to develop a national regulatory framework for mortgage lending, to be overseen by the commonwealth," he said.

"This framework will be informed by the ASIC report released today which will help shine a light on high exit fees, and will underpin future efforts to ensure full disclosure of fees and boost competition in the banking sector."

"By increasing competitive pressure on the banks, the Rudd government is helping to ensure that those banks and other lenders which offer the best value will be rewarded."

"The Rudd government is committed to making it as easy as possible for families to vote with their feet and switch banks if they are not satisfied with their current lender."

The review is part of a package of reforms announced by the Federal Government in February, including the establishment of a website to give customers advice on how to switch banks, and the cost and benefits of doing so.