The government is being called to stop banks double dipping on fixed-rate mortgage break fees, by investors, brokers and the Banking Ombudsman.
Currently banks are only allowed to recover their “costs” when a borrower breaks a fixed-rate mortgage. However the rules in the Credit Contracts and Consumer Finance Act are interpreted differently by individual lenders, allowing some to charge up to three times as much as others.
The worst offenders among mainstream lenders say mortgage brokers are Westpac and Kiwibank which they say are "double dipping" – lending money to borrowers at retail rates, charging break fees on wholesale rates and then re-lending the money at retail.
Banking Ombudsman Liz Brown says the lenders' interpretations need to be tested through the courts and that is the role of the Commerce Commission. “We do need some better guidance for the banks and other lenders,” Brown says.
Last year the commission took Avanti Finance to the district court for breaching the act in respect of break fees, but lost. It is currently appealing that decision.
Brown is awaiting the outcome of the case eagerly and hopes that the commission may take more action. The number of calls to the Ombudsman's office has doubled in recent months – mostly due to borrowers who are outraged at the break fees their lender is charging.
Mortgage brokers contacted by Landlords.co.nz said that the issue had come to the fore since interest rates started falling rapidly last year and borrowers found themselves fixed on rates well above deals available now.
Borrowers can complain to the Banking Ombudsman, but if the complaint is simply the fact that they have to pay break fees or the level of the break fees then although their calls will be logged, they will be directed to the commission, which enforces the act.
Landlords.co.nz spoke with a number of mortgage brokers who were all critical of the system. Richard Baker, mortgage broker for New Zealand Mortgage Finance, described what some of the lenders are doing as "double clipping the ticket".
Kris Pedersen, of Property Financial Solutions, said the system for calculating fees was so complex that only someone with a calculus degree would understand it. Few made the calculations available to the public.
Annette Kann of Roost, added that her own personal experience with Westpac showed the system was weighted in favour of the banks. Westpac used wholesale rates to calculate the break fee – but those rates couldn't be found on its website. She also found out that the loan was in her case rounded up and then break fees charged. The logic was, she said if the outstanding mortgage was $173,421, for example, the bank said it couldn't lend out such an amount, so rounded it up before charging the fees.
Property investors can complain about the break fee system through banks' own grievance procedures, the Banking Ombudsman, the Commerce Commission, or their local MPs.