Latest NewsMortgage Exit Fees LowerTuesday, 14 February 2017

New law aims to put clamp on mortgage exit fees and has the teeth to back it up.

Two-and-a-half years after Treasurer Wayne Swan promised to make it easier to switch home loans, it is about to become cheaper - but not for those who already have a mortgage.

Mr Swan's much-vaunted ''bank-switching package'' unveiled in February 2008 amounted to little more than a website, a ''hotline'' that turned out to be the Securities Commission switchboard and a requirement for banks to give clients a list of their direct debits to take to their new lender.

But from yesterday, the Securities Commission will be given teeth to declare void so-called ''unfair'' or ''unconscionable'' exit fees that do not relate to the costs banks actually incur in closing accounts.

Financial Services Minister Chris Bowen told The Age that lenders would still be able to recover costs from borrowers who left early, but would no longer be able to ''gouge''. The new consumer credit law in place from yesterday will give the commission power to strike out unconscionable fees, and a new national consumer law will give it power to strike out unfair ones.

And some of the fees are high. Rate-watching service InfoChoice says a Smart Saver variable loan offered by Homeloans Ltd would cost $5178 to exit if $300,000 were borrowed for 25 years and the loan closed within three years. The sum is made up of a $678 exit administration fee and a $4500 so-called deferred establishment fee.

Other fees are much lower, the Credit Union of Australia charging $350, the ANZ charging $700 and Westpac $1150.

But customers already subject to those high exit fees will continue to face them. The new powers will apply only to loans entered into after July 1.

Mr Bowen said he considered legislating to give the commission power to amend existing contracts, but was advised that this would be unconstitutional.

''It would have removed existing rights and almost certainly invited a constitutional challenge with a reasonable likelihood of success,'' he said. ''But I do think we will see behavioural change affecting existing contracts.''

Jenny Mack, chairwoman of consumer group Choice, said the market would not work until customers could switch cheaply.

''As rates went down, consumer advice centres and the Financial Ombudsman were flooded with consumers trying to get out of mortgages,'' she said.

National Australia Bank, which stands to benefit from the change as it offers the lowest variable rate of the big four, was enthusiastic. ''If these laws give Australians more power to walk down the road and find a better deal that's a great thing,'' said chief executive Cameron Clyne

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