Non-banks face annihilation says MFAA (Mortgage & Finance Association of Australia)

The non-bank lending sector will disappear when the exit fee ban becomes law in 1 July, and are already going backwards despite the government's focus on mortgage competition, according to the MFAA (Mortgage & Finance Association of Australia).

Referring to Australian Bureau of Statistics figures released last week, the association said in a statement released to media that smaller lenders are losing ground, while the banks' 90.2% market share was the highest since September 2010.

The MFAA said that in contrast, non-banks managed only 1.9%. This contrasts with the 13.6% share that non-banks had achieved in competition with the banks prior to the financial crisis. The ABS figures found that credit unions and building societies held a 7.9% market share in February.

MFAA CEO Phil Naylor said that these ABS figures support our contention that the upcoming elimination of exit fees will not increase competition.

“Most of the major banks have already dropped their exit fees ahead of government regulation and this has clearly resulted in a churning of loans among the major banks but to the detriment of non-bank lenders," he said.

“On the basis of this trend, non-bank lenders will disappear when exit fees are totally banned in July. How can it be good for consumers when the most competitive lenders are forced out of the market?” he said.

Naylor said the MFAA had asked the government to exempt smaller lenders from the ban on exit fees.

“Non-bank lenders are synonymous with bringing down the margin on home loans in Australia, making them more affordable for all Australians,” Naylor said. “Those loans were built on the deferred establishment fee – it allowed them to compete with the banks.

“Without deferred establishment fees, competition will reduce and Australians will eventually pay more for their mortgages.”

Non-banks and mortgage managers have already begun ditching DEFs prior to 1 July, with many considering broker commission clawback as part of their revised cost structure, in order to remain competitive.

Article c/- Australian Broker News written by Ben Abbot