BANKS and mortgage insurers stand accused of ripping billions of dollars from borrowers by insisting they take out a brand new policy every time they switch loans or to another lender.
The practice has been identified as a concern by federal Treasurer Wayne Swan’s review of banking competition, but any solution may be years away.
In the meantime, borrowers will continue to be ripped off by excessive insurance premiums every time they change loans or lenders.
Mortgage insurers charge premiums averaging $2000- $3000 each time a borrower buys a property or refinances a loan for more than 80 per cent of the property value, providing by far the biggest hurdle to switching banks.
Critics argue Mr Swan should have focused his full attention on the cost and anti-competitive nature of the mortgage insurance industry instead of banning mortgage exit fees, which average just $700-$800 at major banks.
The Treasurer said the banking reforms he announced last week include a commitment to “accelerate the Treasury’s development of potential frameworks to transfer lenders’ mortgage insurance and introduce a central registry for mortgages”, but has issued no firm plans or a time frame.
“I am not raising hopes, but it’s worth a go,” Mr Swan said.
The insurance market is dominated by just two giant companies – QBE and Genworth Financial.
Neither has ever reduced their premiums in 45 years of operating in Australia.
The insurers are likely to be included in Mr Swan’s new “price signalling” legislation, which prevents companies indicating to each other how and when they will be setting their prices – a move welcomed by the Australian Competition and Consumer Commission (ACCC).
Graeme Samuel, the head of the ACCC, said: “The industries most urgently in need of attention are those with very few participants that clearly operate as an oligopoly.”
Just a few weeks ago, QBE told The Sunday Telegraph that “premiums are unlikely to fall but are even more unlikely to rise in the near term” – a sign to its rival that it does not need to cut prices.Consumer group Choice is also pushing for the portability of mortgage insurance to be enacted immediately.