Lenders defend against exit fee accusations...

Lenders have defended their approaches to early mortgage loan exit fees following ASIC's announcement that it will crack down on high exit fees. The Australian Bankers Association (ABA) said the exit fees levied by banks were "appropriate and justifiable", and added that fee levels were in part due to lower upfront home loan costs.

"Australia has low entry fees for mortgages compared to countries like the US and UK," said ABA chief executive Steven Münchenberg.

"Banks achieve this by deferring some of the costs of establishing a mortgage and only charging those customers that change their mortgages in the first few years. Keeping up-front mortgage fees lower benefits all customers and supports customer switching," said Mr. Munchenberg.

Mr. Munchenberg also pointed the finger at non-bank lenders, arguing that "non-authorised deposit-taking institutions typically charge higher fees than banks".

Steve Sampson, head of lending distribution at non-bank lender Provident Capital, is supportive of ASIC's move but stated that it needed to fairly take into account specific loan details and lending circumstances.

"Firstly, we must acknowledge that a deferred establishment fee actually reduces the initial costs of providing a loan," said Mr. Sampson.

"Secondly, if a harder line is taken, then it needs to address other fees relating to the loan: for example, some lenders may charge high account keeping fees during the term of the loan. Thirdly, lenders fund in differing ways and expect/plan certain profitability. On, say, a fixed-rate contract, there may be a ‘book match’ of depositor vs loan funds and the early repayment of the facility may reduce an expected return on the investment. It is important that the lender can structure an early repayment fee to reflect these types of issues," said Mr. Sampson.