(7 March 2011 – Australia) John Symond, executive chairman of home loan lender Aussie, has warned that the government’s proposed ban on home loan exit fees could threaten the existence of smaller lenders.Mr Symond also said that the move could result in a fresh wave of consolidation.
In a letter to the federal Treasury, Mr Symond pointed out that smaller lenders would not be able to absorb the cost for setting up mortgages, therefore forcing them out of the market.
‘This will drive further industry consolidation as smaller lenders will be forced out since they are unable to match the aggressive discounting of set-up costs by the large banks, who will await a cleared playing field until increasing their fees,’ Mr Symond said in a submission to Treasury.
‘A concentrated market with fewer lenders could also present risks to the financial system.’
The government has moved to ban exit fees as part of its reforms to boost banking competition, saying that exit fees discourage borrowers from switching loans to new banks.
Mortgage aggregator the Australian Finance Group has also warned the plan could thwart competition.
‘The proposed exit fee amendments, if anything, push more power back to the big four banks and their subsidiaries,’ it told Treasury.
According to the group, without the protection of a so-called ‘deferred entry fee’ (an exit fee), non-bank lenders would be forced to charge higher interest rates as they already have higher funding costs.
‘This is self-defeating and may remove the opportunity for non-bank lenders to re-enter or enter the market as the impact of the GFC lessens,’ it says.