The Federal Government’s ban on exit fees will lessen competition in the mortgage market, add to the cost of home loans and may even cause higher interest rates, according to Australia’s leading mortgage broker, Aussie Home Loans.

The founder of Aussie Home Loans John Symond says the exit fees ban “will hurt not help borrowers, as it will end up adding to the costs of their mortgages”.

Mr Symond added without exit fees most lenders will be forced to introduce loan application fees or increase variable interest rates to cover the costs of setting up loans. These costs include valuation and legal fees – usually charged by third parties.

“With exit fees being banned, consumers may well find themselves in a position where they will have to pay costly loan application fees or possibly higher interest rates, as the majority of lenders will need to recover their costs”, he added.

Meanwhile the big banks are in a better position to recover their upfront costs from home borrowers by cross selling other financial products.

Mr Symond said “it is possible that the banks will carry the costs and watch the smaller players become less competitive over the next couple of years. Then in a less competitive market, they may well lift interest rates.

“The banks also enjoy the protection of government savings guarantees and wholesale funding guarantees, further enhancing their competitive position against the smaller players”, he added.

Mr Symond concluded, “It has been the non-banking industry over the last 20 years that brought competition to the mortgage market and forced rates down. The Federal Government’s ban will go a long way to undoing that good work by making it harder for smaller players to compete”.