Australia’s non-bank lenders warn of higher interest rates
SYDNEY: Australia's nonbank lenders have intensified their attack on Treasurer Wayne Swan's plan to boost mortgage market competition, arguing it will lead to higher interest rates.
The federal government wants to ban exit fees on new standard variable home loans from July 2011. The Mortgage and Finance Association of Australia, the peak body for non-bank lenders and home loan brokers, says this will hurt smaller players, who comprise just three per cent of the market.
"They would have to put up their interest rates," the association's chief executive, Phil Naylor, told a Senate hearing in Sydney on Tuesday.
"But if they put up their interest rates, they're no different to the rest of the lenders in the market." Nonbank lenders charge some of the lowest interest rates in the mortgage market but also levy some hefty exit fees. One Victorian lender charges $7,300 if a borrower wants to leave an average $300,000 mortgage within the first three years. The Commonwealth Bank charges $700, while Westpac demands $900.
ANZ and National Australia Bank have abolished exit fees. Still, Mr Swan has attacked shadow treasurer Joe Hockey for declining to say whether the coalition will back Labor's plan to scrap exit fees. "You've got Mr Hockey supporting unfair mortgage exit fees as high as $7,000," he told reporters in Perth.
Mr Naylor hit back at Mr Swan's suggestion smaller lenders rely on exit fees as part of their business model.
"They don't build their model on the fact that everyone's going to leave in the first three years and therefore they're going to get $7,000 per customer. That would be dumb," he said. Aussie Home Loans founder John Symond criticised the government for failing to appreciate how non-bank lenders had driven competition. He took exception to the government's plan to create a fifth pillar in banking by promoting credit unions and building societies. "It wasn't the banking sector that brought competition, it wasn't the mutuals ... but to suggest the mutuals can become the fifth force in banking, quite frankly, is a joke," Mr Symond, who founded the mortgage originator in 1992, told the Senate inquiry. "If the government wants to make a difference, and promote competition, they would have to invest something like at least $30 billion a year, $40 billion a year," he said. Senator Hurley responded by reminding Mr Symond about the Commonwealth Bank's one-third share in Aussie Home Loans. "That's a lot of money to pay for competition so that you can get 30 per cent off CBA and pocket it," she said.
Australian Bankers' Association chief executive Steven Munchenberg told the inquiry nonbank lenders were unlikely to make a comeback as global credit costs remained high. -PB News
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