Sydney, NSW -- (SBWIRE) --06/10/2011 -- The Mortgage & Finance Association of Australia has urged the government to rethink its controversial ban on mortgage exit fees after the Australian Bureau of Statistics released figures showing competition was further drying up in the crucial financial sector.
Housing Finance statistics for April were released yesterday (June 8) showing a further reduction in competition in the home loan sector as non bank lenders market share slumped to 1.0 per cent.
This is its lowest figure since non banks entered the market in the early 1990s. It is also a drop on the 1.2 per cent market share recorded in March.
MFAA chief executive Phil Naylor said the non banks formed an important part of the mortgage market because they competed with lower interest rates, ensuring that consumers could always find a better alternative to the banks.
Between 1996 and 2006 non banks rose to have 15 per cent of Australian mortgages as lenders such as Aussie and Wizard reduced interest margins with a ‘deferred establishment fee’ and made the entire market reduce their own mortgage margins by more than a half.
“These latest figures are very disappointing and the downward trend coincides with the government announcing it will ban exit fees,” said Mr. Naylor.
In banning exit fees, effective July 1 of this year, the government had defined the deferred establishment fee as an exit fee, penalising non banks.
“Non banks have to fully cost the establishment fees for a loan, which could be as high as $2000 for legals and valuations,” said Mr. Naylor. “The non banks say a borrower doesn’t have to pay this establishment fee if they stay in the loan for, say, five years.
“It makes the loan worth while for both lender and borrower. By banning the deferred establishment fee, non banks can’t compete with banks who can bring the establishment costs in-house.”
In these latest figures credit unions (4.9%) and building societies (2.1%) have also lost ground while the banks have increased their market share to 92 per cent – the highest bank market share for mortgages in 20 years.
“Clearly there is no meaningful competition across the industry and smaller lenders are being squeezed further each month. We urge the government to either drop the exit fee ban altogether, or take note of the Senate Economics committee inquiry into banking and exempt non banks from the new regulations.”
Contact:
Phil Naylor
phone 02 8905 1301
0411 554 048