KEY POINTS:
An Auckland apartment owner is hopping mad at having to pay an $11,500 break fee to get out of his $118,000, five-year mortgage with Kiwibank.
Richard Parkinson put his Emily Place apartment on the market because he'd had problems with tenants and wanted to recover some debt. The property was sold in December for $132,000, which would have left him with proceeds of $14,000 - but for the cost of breaking his 7.85 per cent fixed-term loan three years early.
Mr Parkinson was forced to pay the break fee in order to settle on the property and have title transferred to the new owner, but he has been arguing with Kiwibank ever since.
He said his original mortgage was through HSBC bank, which subsequently sold its loan book to Kiwibank. He believed HSBC's break policies were not as harsh as the government-owned bank's.
"I'm seething. I'm just grumpy."
He was particularly angry about Kiwibank's television advertising, in which it promotes its low rates. "Every time I see that ad on TV I feel like smashing it."
Kiwibank spokesman Bruce Thompson said the $11,500 was the cost to the bank of breaking the loan, and its policy was the same as HSBC's.
He said the way Kiwibank did its funding in order to offer low interest rates meant the cost of breaking loans was also higher.
It calculated break fees based on the difference between what it cost to fund the loan when it was first taken out - the wholesale rates - and those rates now. Some other banks did the same, he said.
Recent falling interest rates meant if borrowers backed out of their loan contracts the banks were left with high costs, compared with current rates.
Banks weren't able to back out of their end of the bargain, Mr Thompson pointed out. "In a rising market the bank wouldn't approach a customer and say, 'we want to break because we can get a better return'."
The issue of break fees became political this week, with both Finance Minister Bill English and opposition Labour leader Phil Goff calling for banks to reduce or or waive break penalties.
Meanwhile, property commentator Olly Newland is urging mortgage borrowers being stung by high break fees to challenge them through the Disputes Tribunal.
He said the New Zealand banking system was "in reality a cartel in the same way that the main players dominate petrol distribution"
