The banning of mortgage exit fees has forced non-bank lenders to secure new sources of revenue and funding, with small businesses set to benefit.
Mortgage exit fees were banned as part of Treasurer Wayne Swan’s banking reforms, designed to increase mortgage competition.
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However, non-bank lenders argue the reforms have had the opposite effect, with the banning of mortgage exit fees forcing them to re-strategise their revenue sources.
Pepper Home Loans chief operating officer David Holmes says Pepper will push into the SME market in 2011, following its sale last June to US-based investment firm Aladdin Capital.
“We are looking for opportunities to move into equipment leasing, commercial financing and debt management [as well as] further debt servicing opportunities,” Holmes says.
Pepper also writes home loans to borrowers who fall just outside the credit criteria of major banks, and will work to overcome broker hesitation about selling low-doc loans under new consumer credit laws.
The National Consumer Credit Protection Act, which came into effect this week, requires greater scrutiny of low-doc clients and has made many brokers and lenders cautious about dealing with such clients.
The laws are expected to have a severe impact on self-employed borrowers, as it is typically more difficult to assess the financial position of these borrowers.
Holmes says Pepper will continue to service niche markets outside the major banks, including self-employed borrowers.
“There is a lot of growth potential in our mortgage business as credit access from major banks remains difficult,” he says.
According to Resi Home Loans chief executive Lisa Montgomery, non-banks are back on borrowers’ radar as confidence returns.
She says the banning of mortgage exit fees means service will also be crucial for customer retention, which is good news for small business owners.
“Service is where we have the opportunity to really differentiate… We’ve recently made three executive hires and grown our franchise footprint,” she says.
Meanwhile, former Reserve Bank governor Bernie Fraser is unconvinced whether credit unions and building societies are the greatest beneficiaries of the government’s banking reforms, particularly with regard to account portability.
Fraser will report to the government by the end of June with an outline of the obstacles and the case for account portability.
Portability is one of several reforms proposed by Swan to further address the dominance of major banks in mortgage lending.
Account portability may enable customers to chase sharper interest rate offers, and increase lender competition for borrowers through better service and pricing to discourage account holders from switching.