The Federal Government, and treasurer Wayne Swan in particular, have loved playing hero for the Aussie homeowner by attacking lenders and allegedly tightening the reins on their credit policies.
BY ED NIXON
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 upfront 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 1 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 upfront 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 $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 upfront 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.?
Of course this escalation in establishment fees will have much more of a detrimental impact than exit fees ever have, particularly for investors. Why? Because while it’s not so commonplace to swap and change lenders on a regular basis and in turn have to fork out thousands to break your contract with the bank, applying for a loan is something you have to do on a fairly regular basis in order to continue building your portfolio.?
The treasurer should know, like most Australians do; the banks never lose!
Ed Nixon has been in finance since 1991, with 12 years experience in commercial finance. Ed is a leading expert in mortgage broking, specialising in the structuring of multiple loans for continued borrowing. He is passionate about helping people grow wealth through property. Visit http://www.trilogyinvestmentpropertyfunding.com.au/