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Banks' self-regulation puts borrowers back on top

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June 23, 2011

Mortgage lenders are rushing in to dump early exit penalties before legislation mandates abolishment of the hefty fees from July 1, 2011.

It is good news for borrowers who will likely have greater bargaining power in the home loan market as the old fee-based model is pushed out in favour of more positive customer retention methods.

Since November last year, around one third of the lenders monitored by RateCity have scrapped the fee charged to customers that switch loans before their contract allows. Now, just over half of the mortgages on the site charge these fees, compared with June last year when 80 percent of variable mortgages did so.

Of fees still being charged, most occur when a borrower switches within the first four years of holding the loan and the fee is either a fixed amount or charged as a percentage of the loan balance. The average fee charged is $796, which is down from $857 since November 2010.

It's no coincidence that lenders are shying away from early exit fees, RateCity chief executive Damian Smith says.

"While there are likely to be several factors contributing towards the change of heart by lenders to drop this fee, there's no doubt that lenders were anticipating changes to regulation that would ban these fees, and therefore moved early to get better public reaction," he says.

What this means for you
The big four banks have all moved to slash early exit fees - 19 of the 22 products offered in this category now have no deferred establishment penalty. That wasn't the case in November last year, when none of the major banks offered variable rate mortgages without early exit fees.

Other players have jumped on the bandwagon too. The percentage of non-big four lenders that have no early exit penalties rose from 16 percent to around 40 percent since November.

"Some critics of the ban on exit fees have said it's just a tactic available to the big four but the data shows that many lenders, large and small, have moved in anticipation of a ban," Smith says.

As a result of the changes to fees in the market, refinancing has increased by 3 percent as of April 2011, compared to last year's Australian Bureau of Statistics figures for March.

Borrowers now have even greater negotiating power than in the past, so why not contact your lender and see what they are prepared to offer you to retain your business. If you're not happy with the response, compare mortgages online and find a lender that will make you happy.

 

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