More small lenders make fee and rate changes

More small lenders have responded to the ban on exit fees, which took effect on Friday, by introducing application fees or increasing interest rates.

According to the comparison website Mozo, on Friday, B&E, which mainly trades in Tasmania, has introduced an A$650 application fee across its loan portfolio. B&E also increased the rate on its Topline loan by 0.05 per cent.

Heritage Building Society has introduced a $600 application fee on its basic variable and fixed rate loans. It has also added a fixed rate lock-fee of 0.12 per cent.

MyRate increased its standard variable rate from 6.91 to 6.95 per cent.

Earlier last week, Aussie Home Loans increased the application fee on its Optimizer range from the current range of $250 to $500, to $600.

ME Bank announced the introduction of two new service fees - a $150 valuation fee and a $150 solicitor's fee.

Greater Building Society announced that it would introduce a $500 application fee on July 1.

Some lenders, such as Homeloans, have taken a different tack and will claw back commissions from brokers if the loan is paid out within a certain number of years.

Meanwhile, big lenders are marketing application fee waivers and rate discounts.

Surprisingly, not all small lenders oppose the ban on exit fees, even though it is forcing them to add up-front charges that may make their products uncompetitive.

The head of brand and product at ME Bank, Ian Hendey, said the change would help make the cost of home loans more transparent. "There are hundreds of home loans on the market and each one has a variation in the fee structure," he said.

"Often the true cost of a loan is hidden behind a low initial rate. Some borrowers encounter real difficulty changing lenders as a result. In other cases, existing customers are paying for the inducements being used to win new business.

"The ban will clear some of these things up."

ME Bank's previous strategy involved having no application fee but charging $600 for "set-up recovery" if the loan was paid out within five years.

Now it will charge the $150 solicitor's fee with each new loan but only charge the $150 valuation fee when it requires a full valuation (in about 60 per cent of cases).

Hendey said: "We don't think we will be any less competitive. We still have a very competitive product."

The chief executive of the comparison site RateCity, Damian Smith, said most lenders were not fazed by the ban on exit fees. He said while there were examples of small lenders adding upfront fees it was not widespread.

RateCity's database shows a significant drop in exit fees over the past six months but only a small number of lenders adding application fees or increasing interest rates.