Fixed Mort - Taking EBS to the Regulator

d_mcevoy said:
Yes I have documentary evidence showing that EBS advised me to take out a fixed rate product without mentioning the downside of such a course of action.
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At the time you took the loan out the ECB rate was 3.75%. While this was not a record high rate for the bank the pressure at that time was indeed up. So you took out a rate which you thought was favourable to you. Were you aware of the consequences if the rates went down even if the bank did not point these consequences out to you at the time?
 
I was explicitly advised by the bank to take a fixed rate mortgage and not explicitly advised that there may be penalties for changing to variable or redeeming the mortgage early.

Case is now with the Ombudsman so I will post an update when I receive it.
 
Can you type the break out penalty clause so we can figure out the difference between the 11K and 19K. I do know that sometimes if you telephone for the redemption fees you can get a different figure to that which it is in reality. You should always get these quotes in writing. Have you had a mortgage a long time, did you start with IIB with a variable or fixed rate? I ask these questions because in order for your arguments about bad advice to have any weight you'd really have to show you didn't have a clue about penalties. Someone who has managed to move mortgages would in general be more mortgage savvy than most or maybe not. Personally I think the breakout fees nowadays are crippling but that's a debate for another day.
 
I wasn't given a breakdown on how the penalty cause is calculated.

Originally I had an variable mortgage with IIB (for 2yrs), ironically I moved to EBS as my family had a relationship with the bank!
 
d_mcevoy said:
I wasn't given a breakdown on how the penalty cause is calculated.

Originally I had an variable mortgage with IIB (for 2yrs), ironically I moved to EBS as my family had a relationship with the bank!
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I don't think you would have been given a breakdown, it's more likely in the small print a clause stating that the bank will take 3 months interest as penalty or something like that. Are you sure you have nothing that mentions penalty clauses, maybe your original mortgage documentation from when you took out the mortgage, there has to be something there.

I think when I've signed the fixed rate forms it doesn't mention the penalties if you break the clause (I'll have a look later) but it's mentioned on the back of the original loan offer.
 
Hello Mcevoy very interesting in listening to your complaint about EBS and would love to know how your case finishes up. I am put in a similar situation myself having signed up to a 5 year year mortgage on 'advice' by EBS . I had even asked them would they think their rates were soon to drop and was told there was no such plans. There rates dropped the following day i signed for my mortgage and have continued to crumble. Having read some of these forums it seems most other banks, considering the situation in the country are allowing people to back out of fixed rate mortgages or at least not at a fine of 19,000 euro however EBS refuse too.. I am actually with EBS cause i was sent there by the council as they cater for AH . I will be meeting with them during the week but alas not feeling very confident in getting my rate changed in any way. I too will be going to the Ombudsman and asking the council to strike them from such schemes as the AH if this is the way they operate.Like most of the country my wages have decreased significantly in the last three months and quite possibly be let go by the summer.That is my two cents on the matter !
 
I have to say I think the banks are extremely slow to pass on information as to how penalties are calculated.

I called AIB three times last year to find out how much we would pay and how it would be worked out. Got nowhere Eventually I found our mortgage offer and worked it out for myself. We broke out of our fixed rate early and paid about €600 which was great. We made it back within a couple of months.

However since then quite a few friends of ours have found themselves unable to break out. They didn't understand that the penalty goes up as rates go down.

This is a fairly easy concept to communicate to customers. So why don't banks do so? I called AIB, whom I generally find to be very professional, three times and got no answer to my question and no call back.

Why is there so much confusion out there about penalties? I think the banks are doing a very bad job, either deliverately or otherwise, in communicating with their customers.
 
Hey D Mcevoy. I am too in the same situation with EBS and I would like to know how you get on. I am willing to pursue them all the way.
Please keep me up to date.
 
I'm not sure whether the d_mcevoy has serious grounds for complaint but in any case, here's some background to give some perspective on these fees in case anyone is interested. Whether d_mcevoy was ill advised is a different issue.

The quoted 19k is correctly called a breakage fee and not a fine or administration fee. You may think that the bank could just be nice and "waive" this fee but this fee represents a real cost for the bank and not some capricious way of punishing customers who "bet" incorrectly on interest rate movements.

Breakage fees work pretty much the same whether for a loan or for fixed rate savings (for example term deposit savings).

In the case of "switching to variable rate", it's the same as you canceling your original loan and taking out a new one as far as the bank is concerned. Even if you weren't to re-mortgage but just turned up with a suitcase full of cash to pay off your mortgage, you would be charged a breakage fee.

When you borrow from a bank on a fixed rate the bank effectively borrows the money in the markets at the prevailing rates (actually this isn't fully accurate, the bank's treasury department generally handles this) for the term. The point is that the bank has locked itself into a repayment schedule.

So say a customer borrows 500k at 5% fixed for 5 years. The bank (effectively) borrows the money in the markets - lets say at 3.5% for 5 years. Normally this guarantees profit for the bank (they collect 5% interest but pay 3.5%) but the problem is that the bank is effectively locked into this loan while the customer generally has some sort of option to break the term of their loan.

If the customer wants to "break" the term of the loan - let's say 2 years in - then the bank still has to make the payments on the loan it has taken out from the markets. So the bank effectively takes the returned loan money and lends it in the markets at a fixed rate for the remainder of the term and uses the interest it makes to make the payments on it's original money market loan.

If the interest it makes with this investment in the money markets is less than that required to service its first loan (e.g. in this case, if three year interest rates are less than what 5 year rates were 2 years ago), then there is a shortfall for the bank. This shortfall is recovered from the customer in the form of a breakage fee.

Having said that, if the converse holds (e.g. in this case, if three year interest rates are GREATER THAN what 5 year rates were 2 years ago) the bank will make extra money if you redeem early but I don't know of any bank who offer a "breakage" bonus.
 
d_mcevoy said:
There was no statement of suitability, the Managers advise was to take the fixed mortgage as he expected 3 rate jumps in the short term.
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To be fair, the Manager at the time was right in this advice ( or fairly right anyway).
 
What if the EBS had told you that you had to take a 5yr fixed rate or you wouldnt get the mortgage after initially offering you a variable rate (the documentation then came back from the the underwriters saying the above)
 
dublinguy71 said:
What if the EBS had told you that you had to take a 5yr fixed rate or you wouldnt get the mortgage after initially offering you a variable rate (the documentation then came back from the the underwriters saying the above)
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If EBS did that, then they would have had concerns about your ability to pay the mortgage if interest rates were to rise.

You then had the choice to reject this and apply elsewhere. If other lenders said the same thing then you need to see what they're telling you.

The regulator's job is not to force banks to give products to people which might be unsuitable to them. I'd argue that you'd really have a case of misselling if EBS gave you a variable rate mortgage which would have put you in difficult if there was an interest rate rise.
 
You will find the exit penalty formula on the 2nd or 3rd last page of the offer.
Its complicated to figure this out. Most people don't look at it. You should had a copy of the offer posted out to you Your solicitor should have a copy.

If you have signed it then unfortunately you have no case. A lot of people are in the same position as you. I believe that the exact figure of the penalty should be disclosed at the time of drawdown if you were exit it then. The formulas are designed to be for this reason.
 
within29 said:
You will find the exit penalty formula on the 2nd or 3rd last page of the offer.
Its complicated to figure this out. Most people don't look at it. You should had a copy of the offer posted out to you Your solicitor should have a copy.

If you have signed it then unfortunately you have no case. A lot of people are in the same position as you. I believe that the exact figure of the penalty should be disclosed at the time of drawdown if you were exit it then. The formulas are designed to be for this reason.
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Variable mortgages are required to show how the repayment levels would vary for a 1% rise in interest rates, fixed mortgages could show what penalties would apply for a 1% fall in interest rates

Life insurers/pension providers are required to give this type of information...but no one reads it!!!
 
was it not wrong of the EBS to say i have to take one type of mortgage ? I would have thought you either are eligible for a mortgage and then get to pick between Variable or fixed etc or you are not eligible and have to apply elsewhere ?
 
dublinguy71 said:
was it not wrong of the EBS to say i have to take one type of mortgage ? I would have thought you either are eligible for a mortgage and then get to pick between Variable or fixed etc or you are not eligible and have to apply elsewhere ?
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Actually no.

You can choose between banks and products all right but banks have different criteria to you when assesing if they can offer individual products. The most obvious example is the Loan to Value (LTV) product. Obviously you can't just request that when your LTV doesn't match the critera.

With the 5 year fixed product most institutions were able to get around the stress testing stipulation on all mortgages as - given the fixed nature - your rates wouldn't increase over the period. As such they could offer you a fixed rate for, say 300K, when the most they could offer you on the variable was 250K. If you wanted to 300K they could only offer you the fixed.

EBS in particular tried to avoid stress testing altogether in, I think, 2007 as rates were deemed to be close to their top but the Regualtor insisted. Maybe in was in that period when you were requesting a mortgage from them?
 
It was on the TV the other day that 20 people have complained to the Regulator about breakage fees on fixed rate mortgages.. a guy from the banking federation or something was on too, he said that the banks don't make a profit from early breaking fees.. so if the customer doesn't pay someone else is going to have to., i.e the bank itself or the taxpayer.

I personnally think that any moves to allow people to break contracts should be resisted.. if any help is to be given it should apply on a case by case basis and should be done in the form of grants fom social welfare, or additional tax benefits from Revenue.. an across the board change would be silly in my view.

Keep in mind that people on fixed rates are in exactly the position they wanted.. they know what the payments are.. so what's the problem? I don't think people can deny responsibility for their own decisions, unless the bank gave you incorrect info, or held a gun to your head. But it is the individuals responsibility to read the fine print.

Cheers
Joe
 
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