Regional differences are emerging in the Australian housing market, with some regions reporting price rises and others seeing values decline.

Sydney and Canberra are seeing real estate values continue to climb, but those in Perth and Brisbane falling, according to the latest house market index.

In addition, the figures show that cheaper properties are selling better than the luxury end of the market, with interest rates and natural disasters such as the floods in January taking their toll.

According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down.

Indeed, over the year to end April, properties in the most expensive suburbs fell 5.4 per cent. This compares to declines of 0.9 per cent and 0.5 per cent in the middle priced suburbs and cheapest suburbs respectively.

“The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains,” he said.

“Yet as the market cools premium home values seem to be losing steam the fastest.”

Story source: http://www.propertyshowrooms.com

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The Mortgage & Finance Association of Australia has urged the government to rethink its controversial ban on mortgage exit fees after the Australian Bureau of Statistics released figures showing competition was further drying up in the crucial financial sector.

Housing Finance statistics for April were released yesterday (June 8th) showing a further reduction in competition in the home loan sector as non bank lenders market share slumped to 1.0 per cent.

This is its lowest figure since non banks entered the market in the early 1990s. It is also a drop on the 1.2 per cent market share recorded in March.

MFAA chief executive Phil Naylor said the non banks formed an important part of the mortgage market because they competed with lower interest rates, ensuring that consumers could always find a better alternative to the banks.

Between 1996 and 2006 non banks rose to have 15 per cent of Australian mortgages as lenders such as Aussie and Wizard reduced interest margins with a ‘deferred establishment fee’ and made the entire market reduce their own mortgage margins by more than a half.

“These latest figures are very disappointing and the downward trend coincides with the government announcing it will ban exit fees,” said Mr. Naylor.

In banning exit fees, effective July 1 of this year, the government had defined the deferred establishment fee as an exit fee, penalising non banks.

In these latest figures credit unions (4.9%) and building societies (2.1%) have also lost ground while the banks have increased their market share to 92 per cent – the highest bank market share for mortgages in 20 years.

“Clearly there is no meaningful competition across the industry and smaller lenders are being squeezed further each month. We urge the government to either drop the exit fee ban altogether, or take note of the Senate Economics committee inquiry into banking and exempt non banks from the new regulations.”

Contact:

Phil Naylor 02 8905 1301

0411 554 048

http://www.exitfeesmeancompetition.com

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The price of luxury properties in Australia could fall for up to three years with some having seen drops of 20% since January as expensive suburbs become the poorest real estate market performers.

The near double interest rate rise in November last year has hit Australian capital city property values which are down 1.2% in the three months to the of end April, although in raw terms home values are mostly unchanged at -0.2%, according to the latest RP Data-rismark index.

The difference between these two results reflects the fact that the housing market typically experiences higher rates of capital growth at the start of each year, which are reflected in the seasonally adjusted data.

According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down. Over the year to the end of April, properties in the most expensive capital city suburbs recorded a 5.4% loss. In contrast, property values in the middle suburbs were down by only 0.9% while those in the cheapest suburbs were the best performers, hardly moving at -0.5 per cent.

‘The solid performance of cheap suburbs runs against the grain of popular claims that default rates are rocketing up amongst first time buyers, which the RBA recently rejected,’ said Lawless.

‘The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle, the most expensive homes realised the highest capital gains. Yet as the market cools premium home values seem to be losing steam the fastest,’ he explained.

According to Rismark joint managing director, Christopher Joye, the uber-luxury segment is risky and highly illiquid due to a combination of the soaring Aussie dollar and the volatile share market.

‘A final fly in the ointment is the much lower growth and pay packets expected in the financial services industry going forward. Luxury homes in areas like Sydney’s Eastern Suburbs will continue to face valuation headwinds as banks deal with the new normal of subdued credit growth,’ he said.

The national median price in capital cities is $468,000 based on sales over the three months to April. Elsewhere it is far lower at $325,000. Across all Australian regions, the median dwelling price is currently $418,000.

Rismark expects at least another one to two rate hikes this year, which will solidify the cooling in residential valuations, according to Joye.

On a month-to-month basis, the January result was the worst on record with capital city dwelling values down 1.2%. Since that time the magnitude of declines has moderated noticeably with average monthly seasonally adjusted falls of -0.4% between February and April. ‘Thus far this has been a very controlled exit from the strong growth conditions of 2009 and the first half of 2010,’ said Lawless.

While the slow down in market conditions is evident across all cities, the Sydney and Canberra markets have remained in the black on a year on year basis. Sydney values are up 1.2% while Canberra dwelling values have risen by 0.7% over the year to April.

At the other end of the spectrum are Perth and Brisbane where home values continue to experience a more significant correction. Perth values have recorded the largest fall of any capital city over the 12 months to April, down 7.1% and down 6.8% in Brisbane.

According to Lawless, the weak conditions seen in the Perth and Brisbane markets combined with the comparatively high capital gains recorded in Melbourne and Sydney has driven a widening housing cost gap.

Story by Ray Clancy http://www.propertycommunity.com

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THE executive chairman of home lender Aussie, John Symond, has warned the government’s proposed ban on exit fees could force out smaller lenders and lead to a fresh wave of consolidation.

There are also warnings that the move could unwind the reforms from the 1983 deregulation of the financial system.

Mr Symond has written to federal Treasury warning smaller lenders could be driven out because they will not be able to absorb the costs for setting up mortgages.

“This will drive further industry consolidation as smaller lenders will be forced out since they are unable to match the aggressive discounting of set-up costs by the large banks, who will await a cleared playing field until increasing their fees,” Mr Symond said in a submission to Treasury.

“A concentrated market with fewer lenders could also present risks to the financial system.”

The government is banning exit fees as part of its reforms to boost banking competition.

It argues that exit fees discourage borrowers from switching home loans to new banks.

Treasury has been having consultations over an exposure draft of rules that would ban exit fees outright on new home loans from July 1.

Mortgage aggregator the Australian Finance Group, which has $65 billion in loans under management, has also warned the plan could thwart competition.

“The proposed exit fee amendments, if anything, push more power back to the big four banks and their subsidiaries,” it told Treasury.

According to the group, without the protection of a so-called “deferred entry fee” (an exit fee), non-bank lenders would be forced to charge higher interest rates as they already have higher funding costs. “This is self-defeating and may remove the opportunity for non-bank lenders to re-enter or enter the market as the impact of the GFC lessens,” it says.

The mortgage industry’s peak body, the Mortgage and Finance Association of Australia, says the plan could unravel decades of reform. “A ban on exit fees will unwittingly reduce competition by making it much harder for non-balance-sheet lenders to compete,” the association says.

“It is these lenders who brought real competition to the mortgage market. To sideline them by making their business models difficult, if not impossible, is a very retrograde step.

“The deregulation of the Australian banking system over the last three decades will be in danger of being reversed, with pre-1983 major banks dominating.”

The Australian Bankers Association, meanwhile, has warned the ban on exit fees appears to be rushed and has not been accompanied by a proper analysis of the effect the measure would have on the economy or the market.

Story by Annabel Hepworth http://www.theaustralian.com.au

http://exitfeesmeancompetition.com

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The leaders of the mortgage broking industry and non bank sector have joined forces to run full-page advertisements tomorrow in the national press as part of a bid to appeal to the common sense of firstly Federal Senators and then Treasurer Wayne Swan over the proposed ban of exit fees.

The ads are headed “Exit fee ban will flatten smaller lenders and reduce competition”.

Supporting the advertising campaigns are the Mortgage and Finance Association of Australia (MFAA), Aussie Home Loans, Australian First Mortgage, Smartline, Mortgage EZY, Loan Market, Mortgage Choice, AFG,  National Mortgage Company and Better Mortgage Management.

The Federal government is planning to introduce regulation on 1 July to ban exit fees, despite protests that the move will annihilate non-bank lenders which have driven competition through reduced mortgage interest rates over the past two decades.

The Senate Economics Committee released its report into banking last month and it made comments that all Australians should note: it called for the Australian Securities and Investments Commission (ASIC) exit fee guidelines to be evaluated before any bans were implemented or that small lenders should be exempted from the Federal government’s ban on mortgage exit fees.

The ASIC guidelines had been released only three weeks before Mr Swan announced the ban.

“There is yet to be a government response to the Senate Committee report, but it should be noted that allowing the ASIC guidelines to operate, or exempting non-bank lenders from the ban on exit fees, would both have the effect of promoting competition in mortgages by allowing non-bank lenders – the real competitive factor in mortgages – to operate in the best interest of consumers” Phil Naylor, MFAA chief executive officer, said.

Contact:

Phil Naylor     phone 8905 1301 / 0411 554 048

http://exitfeesmeancompetition.com

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Be sure you understand all the implications of home-equity loans.

‘Gwen” was in a predicament. The reverse mortgage she acquired to pay for home maintenance became problematic when her health began to fail.

It reached the point where managing the upkeep of the house was beyond her and she needed to sell. But the mortgage had been eating into her equity and the break fees were significant enough to stop her buying into a retirement village or having the funds for a comfortable life.

Reverse mortgages are equity-release products that borrowers use to access equity in their home, commonly in the form of a lump sum, regular payments, line of credit or a combination.

Gwen had not gone through the reverse-mortgage contract with her solicitor. Instead, the solicitor simply had her sign it without ensuring she understood its implications.

Her best option would have been to downsize in the first place and use the funds for a retirement village property and investments. This would have given her the quality of lifestyle she wanted.

She bitterly regrets her decision.

On the other hand, ”Edith”, a widow, is positive about her reverse mortgage. She initially took one out to fund an overseas holiday and give her house a much-needed facelift. This enabled her to improve living conditions and make the house more suitable for her mentally ill son.

That she could access her equity was a blessing. But she was mindful not to spend too much on the reverse mortgage, since she wanted to leave a decent inheritance.

Figures from the latest SEQUAL/Deloitte Reverse Mortgage Survey state there are 39,000 reverse mortgages on issue in Australia.

And the chief executive of Senior Australians Equity Release Association of Lenders (SEQUAL), Kevin Conlon, says the equity-release concept is gaining traction as an increasing percentage of the population reaches retirement age. But what are the implications for consumers?

Mr Conlon says it might mean more seniors will have more comfortable lives. He says about $350 billion is stored in the homes of the over-65s and the house represents about 70 per cent of their personal wealth.

”As they sit in retirement, that storage of wealth in bricks and mortar becomes quite unsuitable to what they actually need,” he says. ”And that’s where we get this often-quoted phrase, ‘asset rich, cash poor’. We believe there is an inevitable demographic shift that will see the equity-release market grow significantly over the next few years.”

But reverse mortgages have been problematic for some seniors. The Australian Securities and Investments Commission’s (ASIC) 2005 report Equity Release Products highlights how the complexity of reverse-mortgage products has made it challenging for consumers to understand how suited they are to a particular product.

Factors that affect suitability include interest rate and property price prognostics, differing life expectancies (and aged-care and housing needs), compounding interest, pension and tax implications and various terms and conditions.

It’s not that there isn’t a wealth of information and advice available to consumers about reverse mortgages.

Credit providers are obliged under law to meet pre-contractual and continuing disclosure requirements concerning interest rates, fees and charges and other matters; SEQUAL requires members to make sure borrowers seek independent legal advice, recommend they do likewise with financial advice and provide them with SEQUAL’s Key Facts Guideline; and other self-regulatory initiatives and information access points abound.

But the chief executive officer of the National Information Centre on Retirement Investments (NICRI), Wendy Schilg, says disseminating information is not enough.

”They are very complex products and people don’t understand them,” Ms Schilg says. ”The only information they’re getting is from the providers. Obviously, when they get information from the providers, the providers aren’t giving them any other options like downsizing.”

Reverse-mortgage regulation is under review as part of the federal government’s consumer credit reforms.

Forthcoming legislative changes include greater disclosure of the features and fees on reverse-mortgage products, mandatory protection against negative equity (SEQUAL lenders already provide guarantees against negative equity) and making legal advice compulsory for all borrowers of equity-release products (though Ms Schilg says reverse-mortgage providers already make legal advice compulsory to protect themselves and she has lobbied for the mandatory provision of financial literacy information for all borrowers).

National Credit Reform: Enhancing Confidence and Fairness in Australia’s Credit Law, the green paper Treasury released last year, provides an indication of how significantly SEQUAL already affects industry regulation.

It estimates that the nine lenders SEQUAL represents provide 95 per cent of the reverse-mortgage products in Australia. Mr Conlon says he expects the current review will result in self-regulatory initiatives introduced by SEQUAL becoming statutory protections. ”Beyond that, we expect very few surprises and very few new regulations,” he says.

Mr Conlon adds that if the government heavily regulates product design, it could ultimately have a stifling effect on the development of the reverse-mortgage market, which could adversely affect opportunities available for consumers.

”I think the danger would be, if the market became heavily regulated, it would simply dampen down competitors and slow product innovation, in that it would keep other funders out of the market. These are not easy products to bring to the market.”

Fiona Guthrie, executive director of the Australian Financial Counselling and Credit Reform Association (AFCCRA), says there are questions about the impact that improved disclosure around equity-release products will have on consumer understanding.

”Improved disclosure is the weakest form of consumer protection,” she says. ”Nobody ever says, ‘Do you understand what you have just read? Please explain it back to me.’ Nobody checks whether anyone’s read anything.”

According to Mr Conlon, customers of equity-release products have lodged just four complaints with the Financial Ombudsman in the past 20 years (three were decided in favour of the lender and the fourth was settled by negotiation, he says).

”As the Financial Ombudsman said, ‘There are very few industries that can point to that type of track record’,” Mr Conlon says.

But a 2007 ASIC report, All We Have is This House: Consumer Experiences with Reverse Mortgages, shows there are degrees of customer satisfaction. Although 26 of the 29 borrowers interviewed said their product had performed as expected so far, a small number expressed regret about the way they used their reverse mortgage and how quickly they spent the borrowings.

Lenders approved 10 of the borrowers for more credit than requested and half took it. These borrowers were only in the first three years of the loan and very few had plans to accommodate changes to their financial needs in subsequent years.

Ms Schilg says you can categorise reverse-mortgage customer satisfaction in three ways: consumers who say acquiring a reverse mortgage was the best thing they have done; those who acknowledge it gave them a financial freedom but worry they no longer have the capacity to make the financial provisions they intended for their children; and those who view the experience as destructive.

She suggests the majority belong to the first category.

”I’m not saying all those understand what’s going on but I think about 90 per cent would be happy, or reasonably happy, with what they’ve done.”

But the development of the equity-release market raises questions about consumer attitudes to credit, Ms Guthrie says. ”These sorts of products in the marketplace have tapped into that latent desire we all have to live now and pay later.”

Gwen and Edith are case studies sourced from Reverse Mortgages and Older People: Growth Factors and Implications for Retirement Decisions, a 2010 report for the Australian Housing and Urban Research Institute.

Story source: Josh Jennings www.domain.com.au

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Australia is suffering from a housing affordability crisis because of rising interest rates and uncertainty surrounding the Gillard government’s planned carbon tax, the opposition says.

Australian Bureau of Statistics data released today showed the number of new homes approved in April fell by 1.3 per cent from the previous month, and now stand 11.5 per cent lower than a year earlier.

Opposition treasury spokesman Joe Hockey said the data showed that housing construction remains under significant pressures.

Australia is suffering from a housing affordability crisis because of rising interest rates and uncertainty surrounding the Gillard government’s planned carbon tax, the opposition says.

Australian Bureau of Statistics data released today showed the number of new homes approved in April fell by 1.3 per cent from the previous month, and now stand 11.5 per cent lower than a year earlier.

Opposition treasury spokesman Joe Hockey said the data showed that housing construction remains under significant pressures.

“Australia is suffering an affordability crisis in the housing sector, with insufficient houses being built to meet demand,” Mr Hockey said in a statement.

“For many, the Australian dream of owning a home is becoming a nightmare.”

He said housing activity is being squeezed by the seven interest rate rises by the Reserve Bank since 2009, coupled with additional increases by the commercial banks.

The uncertain impact of Labor’s carbon tax is also affecting confidence of the industry and potential buyers.

“This lack of confidence is shown clearly in the slowest growth in housing finance in a generation,” Mr Hockey said.

He said while it is pleasing to see a recovery in approvals in Queensland – jumping by 29.2 per cent in April – as it continues to rebuild from the devastation caused by natural disasters earlier this year, the falling national trend remains of concern.

He again called on the government to wind back its “wasteful and reckless” spending to ease upward pressure on interest rates.

“Failure to do so will only deny more Australians the chance to own their own home,” he said.

AAP

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The issue of exit fees in loans is not new to lenders and brokers. The Australian Securities & Investments Commission spent most of 2010 devising and perfecting a regime that would control the use of exit fees in lending.

This regime came together in November 2010 and was known as the exit fee guidelines, which gave guidance to lenders in terms of complying with the July 1 2010 law changes.

The guidelines didn’t seek to ban or eliminate exit fees: there are considerable costs associated with establishing a mortgage and other types of loan, and if the lender is to waive some or all of these costs, they should be allowed to insist on some longevity in the loan.

ASIC used the words ‘unfair’ and ‘unconscionable’ exit fees. In effect, the guidelines say that a lender may only charge an exit fee for early repayment of a loan where the fee relates directly to the losses incurred by the lender. Under these guidelines, a lender can’t charge an exit fee that covers profit not made, or marketing costs. And the guidelines do not allow double-dipping where the lender charges a borrower for the upfront costs and then tries to charge them again for leaving the loan early.

Importantly, ASIC stated that exit fees could never be used to discourage borrowers going to another lender, or punish them for doing so.

There was a long and wide consultation process for these guidelines… only to be gazumped by the government. When the government announced it would ban mortgage exit fees, to enhance competition, it ran over the top of a very good, very clear regime that would have better served borrowers.

Story Source: http://exitfeesmeancompetition.com

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Homeowners can breathe a sigh of relief as the Reserve Bank today announced it will keep interest rates on hold for another month

The RBA made the decision to keep the cash rate at 4.75 percent after a slowing economy saw an underlying inflation rate of just 2.4 percent, well within the target band.

The decision came after the economy recorded its steepest three-month drop since 1991, brought on in large part by the Queensland floods.

The RBA’s announcement comes as no surprise to economists, with both consumers and business are keeping a tighter hold on their pursestrings.

“CPI inflation has risen over the past year, reflecting the effects of extreme weather and rises in utilities prices, with lower prices for traded goods providing some offset,” Reserve Bank governor Glenn Stevens said in a statement.

“The weather-affected prices should fall back later in the year, though substantial rises in utilities prices are still occurring.

“The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.”

RateCity CEO Damian Smith said while many Australians would be relieved interest rates have stayed on hold, they should expect a rise before the end of the year.

“Signals from the Reserve Bank have been very clear that if economic growth remains on trend following the brief downturn caused by the natural disasters, then interest rates will have to increase,” he said. “Borrowers should prepare for at least one 25 basis point interest rate rise by the end of the year.” GDP fell by 1.2 percent in the March quarter, while a drop in job advertisements for two consecutive months dampened hopes of an autumn rebound.

“Not only has the latest data shown an easing of inflationary pressures but hiring intentions have slumped as businesses join consumers in adopting a conservative posture,” CommSec chief economist Craig James.

“Consumers aren’t spending, the housing market is becalmed and now businesses aren’t taking on more staff.”

Mr James said the Reserve Bank could have an extended stay on the interest rate sidelines if current trends continue.

“As long as the new mood of conservatism continues with Aussie consumers then businesses will continue to discount prices to move stock, keeping inflation low,” he said.

The Reserve Bank last raised rates by 25 basis points in November 2010.

Reported by By Nick Pearson, ninemsn

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When a large bank doubled the official interest rate rise on Melbourne Cup day last year, and passed it on to its mortgage borrowers, the media reacted aggressively.

In the aftermath of the bank’s double rate rise, Treasurer Wayne Sawn announced some good initiatives to ensure that there was competition in the mortgage market: a boost to the status of the lenders outside the big banks was one idea; another good one was using government money to improve liquidity in the sources of funding for mortgage lenders who did not have access to large pools of deposits.

However, the most popular initiative was banning exit fees on mortgages.

This was done, according to Wayne Swan, to boost competition. It sounded logical.

However, in banning exit fees, the government also banned ‘deferred establishment fees’. This device means a lender waives the mortgage establishment fees if the borrower stays in the loan for, say, five years.

The deferred establishment fee helped lenders like Aussie and Wizard to offer interest rates significantly less than the big banks; and the non-banks rose to a 15 per cent market share before the GFC, forcing the banks to reduce their high mortgage lending margins.

In other words, non-bank lenders equal competition. To take away their biggest tool will not give us more competition with mortgages. It may mean more competition between the big banks, who have already dropped their exit fees ahead of regulation, but it will not mean more competition and choice for borrowers across the whole market.

If we lose our greatest sources of competition in mortgages, the consumer will suffer.

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Most economists believe interest rates will remain on hold when the Reserve Bank meets today for the first time since the sharp fall in economic growth.

The official rate is expected to remain at 4.75 per cent, despite the RBA issuing several warnings that rates will soon rise.

It is the first time the bank has met since the release of a raft of weak data, including the March quarter economic growth figures, which plunged to a 20-year low.

NAB’s chief economist of markets, Rob Henderson, believes those figures will make the central bank cautious.

He says it is a close call as to whether rates will rise.

“The Reserve Bank can afford to wait a month or so,” he said.

He says the RBA will have to take into account the uncertainty over the US and European debt as well as economic weakness in Australia.

But RBS chief economist Kieran Davies says the bank will be more focused on the mining boom.

“I think the real focus for them is what’s happening with the resources boom and how little spare capacity there is in the economy, and I think that’s the key influences on whether they decide to raise [rates today],” he said.

A new survey of businesses show an interest rate rise as their number one concern.

Source: ABC News

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NSW Premier Barry O’Farrell has backflipped on his plan to slash the subsidy on the solar bonus scheme after he failed to secure support for his retrospective legislation.

Mr O’Farrell needed the backing of the Christian Democrats and Shooters and Fishers in the upper house to pass the laws but failed to secure their votes.

"I am a realist and there is no point putting up legislation which does not have widespread support and is going to be rejected," Mr O’Farrell told the Daily Telegraph.

"No one likes retrospective legislation; I don’t like it myself but we had to try to find a way of curtailing the blowout in the cost of the scheme."

The Labor government he trounced created the scheme that led people to rush out and get rooftop solar panels installed on their homes.

Mr O’Farrell said in May costs for the scheme were blowing out. To stem this, his government would cut payments to subscribers to the scheme from 60 cents to 40 cents per kilowatt hour for the power they feed into the grid.

The change would have saved taxpayers $471 million, the premier had said, but Mr O’Farrell told News Limited new figures show the scheme will cost $1.44 billion, not the $1.9 billion originally estimated.

© 2011 AAP

You can’t talk about competition in the $1.2 trillion Australian mortgage market without talking about the role of the non-bank lenders, as typified by Aussie and Wizard.

When these companies entered the Australian market in the mid-1990s, the large banks dominated mortgage lending with more than 90 per cent market share, while the credit unions and building societies had about 8 per cent.

All these lenders were deposit-taking institutions (ADIs): they paid for deposits at one rate and created mortgages at a higher rate.

The non-banks had no deposits. They sourced funds from securitisation and lent at a higher rate which was significantly less than the rate charged by banks.

Aussie and Wizard deferred the establishment fees paid on mortgages: they told their customers, ‘if you stay with us for five years, you don’t pay the establishment fee.’

This reduced the cost to the borrower and allowed the non-banks to reduce their margins. It boosted the non-banks to around 15 per cent of the market in 2005, with the banks having dropped to around 77 per cent (the building societies and credit unions remained at around 7 – 8 per cent over the years).

Now, after the GFC, non-banks have 1.2 per cent of the market, banks have 91 per cent, and the margins have been rising since the period when the non banks held a strong share of the market.

In other words, if you want competition, you need not just the right to leave a bank; you need a better deal to go to.

If you hobble the non-banks by banning exit fees (deferred establishment fees), you lose competition and it’s the consumer who loses out.

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The mortgage industry ponders the potential impact of a ban on exit fees.

Stakeholders in the mortgage industry are eagerly awaiting the federal government’s response to recent recommendations made by the Senate economics references committee about the viability of banning mortgage exit fees.

But it raises another question: what impact is the ban likely to have on consumers themselves?

Australian Bankers’ Association chief executive Steven Munchenberg says an exit-fee ban would provide a short-term benefit for a minority of consumers who would be paying the fees but there are concerns about the impact the ban might have on the majority of consumers in the medium term.

“The consumers might not benefit if this just makes it that much harder for the smaller lenders to compete with the major lenders,” he says.

“What this whole debate is premised on is, more competition is good because it delivers benefits to consumers, which we accept. But anything that makes it harder for the smaller players to compete with the big guys is actually going to work against that.”

Mr Munchenberg says because exit fees represent actual costs to lenders, there are three ways they can respond to a ban: they can accept it as a hit to their revenue and absorb it, pass the expense on to consumers, or make up the costs elsewhere in the business.

“They’ll need to take into account the extent to which they’re capable of absorbing these costs and also the extent to which passing them on will affect their competitive position,” he says.

Ingrid Just, spokeswoman for the consumer advocate group Choice, says it’s unknown how the costs borrowers incur through exit fees might compare with those that could emerge out of a blanket exit-fee ban.

“What we do know is that the exit fees are one of the barriers discouraging people to switch to better deals,” she says.

Story by Josh Jennings http://news.domain.com.au

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Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.

Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.

RMBS are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders. Misrated RMBS were at the heart of the subprime crisis in the US which lingers to today.

Fitch ‘‘did not expect arrears to increase to this extent and believes that delinquencies have peaked in the current cycle’’, the Fitch report said.

The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.

Low-doc mortgages are written for riskier borrower than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.

Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.

“It’s very significant,” said James Zanesi, the primary analyst on the report. “It means they really have problems in terms of serviceability, probably due to loss of income from the flood or the loss of a business.”

However, the bulk of the Australian mortgage market remains healthy as long as there are no drastic rises in interest rates, said Mr Zanesi.

The latest indicator of rising mortgage stress comes as Australian bank stocks have fallen in recent days, driven both by the European debt crisis, and ongoing worries that Australia’s major banks remain over exposed to an overvalued domestic housing market.

This month Commonwealth Bank revealed an 11 per cent increase in delayed payments on mortgages in the March quarter, with ANZ and Westpac reporting similar increases.

At the same time, home price growth has flatlined. The weighted average home price in eight capital cities sank 1.7 per cent in the March quarter, according to the Australian Bureau of Statistics, the largest fall since the September quarter 2008, when the financial crisis hit.

Fitch predicted arrears should fall slightly in the second or third quarter of 2011, as the impact of both the holiday season and the floods subside.

‘‘This could however be offset by the impact of any further interest-rate rise as well as the recent increase in the cost of living,’’ the report said.

The increased scrutiny of Australian banks’ loan books also prompted Fitch last week to downgrade 54 tranches of RMBS from ratings watch “stable” to “negative”, representing approximately $1.5 billion of RMBS transactions. Fitch said the affected tranches were in about half of the agency’s RMBS ratings universe.

Last week, Moody’s downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1 because of their continuing reliance on overseas funds rather than local deposits to fund their loans books.

Story by Chris Zappone http://news.domain.com.au

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