Exit Fee Passed as Legislation

The legislation to ban Exit Fees has been passed into law on 23^rd March, by the Federal Government. These new laws will see Exit Fees, including Deferred Establishment Fees banned from 1 July.  The new regulations are:

Regulation 79A

The new Regulation 79A provides that a credit fee or charge is prohibited if: 

• it is provided for in a credit contract entered into on or after 1 July 2011; and
• it is to be paid on or in relation to the termination of the credit contract; and
• any of the amounts of credit provided under the credit contract is secured over residential property.

The definition of ‘home loan’ means that the regulation will apply to residential investment loans, not just traditional owner occupied loans. 

The exit fee ban is not limited to deferred establishment fees but extends to any other type of fee payable on loan termination other than fixed rate break costs and discharge administration fees. 

The ban does not apply to the exit fees listed below: 

• a break fee that relates to early repayment of a fixed rate component of the loan;
• a discharge fee which reimburses the credit provider for the reasonable administrative costs of terminating the credit contract;
• exit fees in a credit contract not secured by residential property;
• exit fees in a credit contract secured by residential property that is not regulated by the National Credit Code;
• exit fees such as deferred establishment fees, early repayment fees, and LMI recoupment fees contained in credit contracts entered into prior to 1 July 2011. 

Source: www.mullinslaw.com.au

So is this a good thing? Time will tell us if this will help the average borrower, but we are a little more pessimistic in our view as we believe these types of fees helped give some of the smaller lenders, like Credit Union’s and Building Societies the ability to re-coup some costs if a borrower left them after only a short period of time.  It’s well documented that these second tier and third tier lenders (securitised lenders) cannot compete on funding costs that the big banks are able to source, so they work on lower margins, and losing customers to more competitive lending from the big guys was offset by recouping some of their costs if a borrower didn’t stick around.

You’ll also notice that discharge fees remain, so expect all lenders discharge fees to increase as a means of lenders claiming they are redeeming ever increasing costs. So will it be the case that all lenders will find other means to work these lost fees into their offerings?

One thing is for sure, competition continues to heat up in the mortgage space and lower numbers of new loans are currently being written and this coupled with improving (cheaper) cost of funding flowing through to lenders, will see very competitive offerings on the table.  Once again the very best way to shop these offerings is to use a Mortgage Broker, who spends their entire day hunting down great offers for their clients, and all at no cost to you.  Better yet, our existing customers are also big winners here as we conduct annual reviews, so they know they are getting us to do all the legwork for them every year as we work for our customers not the lenders.

If you would like us to compare your lending options either against your current loan or if you are just starting out and want to find out what options are available to you, simply call our office and request a FREE one hour appointment with one of our Finance Advisor’s. All you stand to lose is one hour of your time; however the upside could be much greater if we can help you get a better deal. Call today on 03 9326 8900 or email [email protected] and request a free home loan and wealth assessment check today.