June 28, 2011 – With the country still struggling with the aftermath of the global financial crisis, Australian lenders today are implementing stricter home loan guidelines.
As a new financial regulation banning mortgage exit fees comes into effect this July 1, 2011, it is feared that first home buyers could be impacted the hardest.
Tony Abbott, Federal Opposition Leader commented that starting July 1 this year, a ban from charging exit fees on new standard variable home loans is going to be implemented and this ban is sure to hit the hardest the first home buyers.
What is an Exit Fee?
An Exit fee or charge is assessed to an investor for withdrawing money prior to a previously stipulated date. It acts as a deterrent to early withdrawals.
Effects of the Ban
As banks are restricted to charge exit fees, banks would surely find other ways to recover any financial losses incurred by the scrapping of mortgage exit fees.
Exit fees are used by banks to recoup their costs.
With the banning, banks have no way to recover their administrative costs leading them to find some other ways that would end up making things a little bit harder for struggling first home designs buyers.
According to survey commissioned by the Mortgage & Finance Association of Australia (MFAA), 55 per cent of the managers and aggregators in the survey say that a lift in their mortgage rates and a re-introduction of their mortgage establishment fees would be needed to offset the costs they will incur if the ban of exit fee will continue to be implanted this July.
First homes for sale buyer borrowers are going to be impacted as competition slows in the mortgage market for without being able to recoup their costs with exit fees, small home loan lenders will need to lift their rates; thus, making them less competitive.
It would now be more difficult for house plans buyers to pay their mortgage payments as bank and lenders are going to increase their rates to offset what they will loss with the ban.
