Borrowers 'are taking advantage of exit fee ban'
Article by Mozo
The government's decision to ban exit fees on mortgages appears to be creating greater competition in the home loan market.
According to new figures released by the Australian Bureau of Statistics, the number of people looking to refinance their existing loans has risen dramatically in recent months.
The Sydney Morning Herald reports that a record 35 per cent of all mortgages issued in 2011-12 involved customers switching to a new lender.
Homeowners have been wary of changing their provider in the past, as banks hit them with huge charges for leaving, but government reforms have stopped this practice.
Every week, banks and lenders are refinancing $1 billion worth of loans at better interest rates and treasurer Wayne Swan is happy to see smaller, less established lenders starting to compete with their more illustrious rivals.
In the first half of 2012, the uptake of home loans issued by smaller banks grew by 24 per cent, although the "big four" still account for 86 per cent of the market.
"People are taking advantage of our ban on mortgage exit fees,'' a spokesperson for Mr Swan was quoted as saying.
"This has put more power in the hands of Australian families: they can walk down the street to another lender if their current bank isn't looking after them," he added.
A lot of lenders had been reluctant to pass on interest rate reductions made by the Reserve Bank of Australia recently, with many of them citing higher borrowing costs as the main reason for this.
The central bank slashed the national cash rate from 4.75 per cent at the start of November 2011 to just 3.5 per cent in June 2012 and this has put huge pressure on companies to offer much fairer rates to their customers.
It has never been easier for customers to switch their mortgage provider, so lenders who have alienated their customers by withholding rate cuts are in real danger of seeing them move elsewhere.
Have a question about home loans? Ask the money gurus at Mozo Answers.