The government and Wayne Swan in particular, have loved playing hero for the Aussie home owner by attacking lenders and allegedly tightening the reins on their credit policies. Sweeping in like a white knight on his trusty regulatory steed, the federal treasurer believes his recent moves to abolish exit fees on new home loans will increase competition in the sector and give borrowers a better deal.
But is this really the case? Or is it more likely that what the banks lose with the abolition of exit fees, they’ll gain by slugging borrowers with an up-front charge for the privilege of applying for a home loan?
One of the big gimmicks that banks have used to lure customers for quite some time is the promise of zero application fees. But with the government aiming to make exit fees illegal as of July 1st this year, there are stirrings among lenders that indicate this apparent generosity could be a thing of the past.
In reality, establishment fees have generally been quite low, with the average up-front cost for a home loan being $463 according to RateCity data from the last six months of 2010, whereas exit fees could cost borrowers anything from less than $1000 up to several thousand dollars in some cases.
This is a significant loss for the banks to wear and the likelihood of them simply writing off this long-time cash cow is pretty slim. So where will they trim some extra fat from? Higher establishment fees and interest rates are the obvious answer.
This means we could see up-front fees of around $2000 plus within the next six months to a year, which would substantially increase the cost of purchasing property and most likely have the opposite effect that Swan was aiming for. The treasurer should know, like most Australians do; the banks never lose!