Earlier today on the program we gave the Federal Government a bit of a pasting over its lie - we called it 'the big lie' - that it has killed exit fees for banks. Of course, you may remember the advertising campaign some time ago, you know, making big fellas of themselves, 'we've killed exit fees'.
We spoke this morning to mortgage expert, consumer advocate and the author of Mortgage Free Debt, Michael Lee. He was very lucid on this subject and very knowledgeable and he said it's actually just a pure, unadulterated lie because exit fees still exist, there is no ban on exit fees - maybe on some of them but a lot of people still have loans with exit fees attached to them, so if you want to pay out your mortgage earlier or pay out your car loan earlier and move on they're going to thump you for it, which means most people don't.
David Bradbury, the Assistant Federal Treasurer has issue with that, welcome to the program David.
BRADBURY:
Hi Rob, how are you? I must say I didn't hear the earlier conversation but I was aware that there was some criticism of the measures that we've introduced.
HOST:
He's referred this, this Michael Lee, who you may know, he has referred this to the Commonwealth Ombudsman and as he spoke to us this morning he didn't muck around, he said the whole thing is just a lie.
BRADBURY:
Well that's not true and I think what you have to be very clear about is go back and look at what we said when we made these announcements and have a look at what we've done. At the time we indicated - we've got to be clear about what we're talking about, we're not talking about fixed rate mortgages and we never were. Fixed rate mortgages are contracts that people enter into where the bank says we will fix the rate at 'x' per cent for one year or two years or three years. Now when you enter into a contract -
HOST:
Was that, sorry to interrupt David, was that made clear during that massive TV campaign?
BRADBURY:
It was, certainly throughout the debate when this matter first came to prominence but you need to understand the difference between a variable home loan and a fixed rate. If you enter into a fixed rate home loan then you're actually buying the certainty of a rate that is fixed at that level. So that means that if rates go up higher than that, well you're protected, you're locked in at wherever you locked in and I think most homeowners understand that, but the downside of that bargain you enter into is that you're locked in for the particular period that you've agreed to. That might be a one year fixed rate or a two year fixed rate.
HOST:
But in reality then, would, how many exit fees are banned? On how many facilities?
BRADBURY:
Well, the other point to make is when these measures came into effect, they did not affect existing mortgages, although I should make the point that for most people that stay in their mortgage for a period of a couple of years the exit fees are lifted almost automatically because most of the banks don't impose an exit fee that last for the entire length of the mortgage, it's for those first few years. So, for example, my home loan, we're up to about eight or nine years in the home loan now. There's no exit fee there. Now, there was an exit fee for the first three or four years and now that's been lifted.
But what we did on 1 July last year was we introduced new arrangements so any new mortgage that was entered into, exit fees were banned for a variable mortgage. What that means is that in that time since 1 July last year we've now had somewhere in the order of around half a million mortgages come into the system post-that period. That's in the order of a value of around $160 billion worth of mortgages across Australia. By this time, or by the end of next year, we expect that you'll be somewhere in the order of 2 million mortgages that will not be subject to those exit fees. But, I think it makes a big difference.
The key in all of this, and I make this point -
HOST:
There are exemptions though, aren't there, which is the point and -
BRADBURY:
Well, there are exemptions certainly on the fixed rate and, you know, you wouldn't end up with any fixed rate mortgages if Government did introduce a ban like that because there'd be no basis upon which to distinguish between a fixed rate mortgage and a variable mortgage.
HOST:
Alright David -
BRADBURY:
But I would just make the point that there is no silver bullet here, but the reforms that we introduced, we did introduce without the support of the Opposition. Presumably those extra half a million mortgages that are now free of a break fee, they'd still be locked into the old arrangements if we hadn't have put these measures in place.
HOST:
Alright, David Bradbury, Assistant Federal Treasurer, thank you for that.
BRADBURY:
Great to talk to you Rob.