Competition for borrowers has moved to new heights, as the slow mortgage market hits lenders hard.
With fewer properties being bought and sold, less first home buyers and home loan activity carried by refinancing, lenders are working harder than ever to attract new home loan customers.
The struggle by lenders is clear from the lower number of home loans financed each month. For example, from 2005 to 2008, the average number of home loans financed was around 60,000 per month. It dropped to 45,000 per month since then.
Michelle Hutchison, Spokesperson for RateCity, says lenders are making it more affordable to switch or enter the property market for the first time.
“While it’s not only cheaper to switch lenders for many variable rate mortgage borrowers, it’s also more affordable to start a home loan.
“As it’s one year since the banking reforms banned exit fees on new variable home loans, we thought we’d take a look at what lenders are charging their customers in upfront fees and if that’s changed.
“What we found was the average cost of upfront fees – including application, documentation, legal, securitization, settlement and valuation fees – has decreased from $707 in January 2011 to $673.”
Ms Hutchison said that some lenders wiped their upfront fees altogether, in a bid to attract new customers.
“When exit fees were banned last year, there was speculation that lenders would hike their upfront fees to recoup the potential revenue loss from the exit fee ban. But we were surprised to find that some lenders have in fact lowered their upfront fees or dropped them altogether.
“For instance, some lenders have introduced “fee-free” home loans such as Commonwealth Bank and Bankwest, and new players that have entered the market are offering no upfront fees such as LJ Hooker and UBank.”
Ms Hutchison says upfront fees still vary significantly, and borrowers should compare all the costs when it comes to home loans.
“Upfront fees range from no cost up to about $1,000 which is why borrowers should take into consideration all the costs when choosing your next home loan.
“More borrowers should take advantage of the home loan market while lenders are competing harder for customers. But not all lenders are competing as hard as some, as we’ve recorded 81 home loans lift their upfront fees since January last year.”