UB fixed rate will expire in 18 mts and will go to SVR without option to move to another bank, advice please

H

Hillwalker123

Registered User
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HI there,

I am looking for some advice/opinions please.
I have a mortgage with UB currently, 2.6% fixed for a further 18 months. At the end of that time, it may well be in negative equity, or if not, certainly will not be 80 or 90% LTV. As such, if mortgage is sold to a fund, it is likely it will revert to a SVR, rate of their choosing, but likely to be punitive. If mortgage is sold to another bank, may be fixed rates available. I am one of those people where the selling of the mortgage could have a very detrimental effect.
In order to review options, I asked for a rate offer letter. My thinking was that if I locked in to a new 4 year rate now, it would give some security and time to build up equity and therefore be in a position to remortgage to another lender at the end of that time. I am advised that another lender will not look at it unless 80%LTV or some may consider 90%LTV. Mortgage comfortably within 3.5xsalary. Main issue is negative equity. There is a 4 year rate of 2.55% but breakage fee is 13k, which I was shocked at. They said in letter breakage fee is 6 months interest or a formula involving R and R1, whichever is less, without telling you what R and R1 are.. I have seen other posters quoted €0 breakage cost for similar change in rates/time reamining. It would seem spending 13k to save 0.05% for 4 years is not a good deal. (actual saving would be approx 2200). Only benefit would be the security it would bring us. Of course, if mortgage is not sold for 18 months and fixed rates are available at the end of that time that will be good. I have also heard that CBI are requesting that UB waive breakage fees to help people switch.
I would be grateful for any advice people may have. Have some savings which would reduce negative equity but not enough to get to 90%LTV..

Many thanks for taking the time to read this.
 
2 questions:
1. Do you have a mortgage with 1.1 million outstanding?
2. Have they actually quoted you a break fee of 13k, or is that number against the new 4 year rate on the rate options letter?
 
1. Yes
2. That is the amount against the 4 year rate on the rate offer letter. There are different amounts against the various different rates. Separately, a letter arrived yesterday with a breakage fee of 11k, I'm not sure what rate this refers to switching to. I'd like to be able to understand how they came up with this number at least.
 
Hillwalker123 said:
2. That is the amount against the 4 year rate on the rate offer letter. There are different amounts against the various different rates
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That makes sense. That's not your break fee. It's the maximum break fee that you can be charged in future, if you select that rate now.

The 11k in your break fee now, regardless of the rate you switch to.


Have they also offered you 5 year rate at 2.55%? It should be available to you - it's definitely an option they offer to negative equity movers.

It's a tough one.
If you end up on a variable rate is c. 3.9% that's an extra 14,300 interest per year. The 'insurance' against that is locking in a fixed rate now, but it'll cost 11k. So it's an 11k cost now to potentially protect you against c.45k extra interest.

I wouldn't rush to do anything yet, but you might have to weigh that option up in the coming months if there's any clarity over what their plans are.

Personally, I would fully expect all performing mortgages to be bought by one of the banks, but that doesn't mean they'll offer new rates as low as UB currently do.
 
Thank you for your reply. Yes, the 5 year rate is the same as the 4 year rate, 2.55%.

Probably no need to do anything now, wait a bit longer for clarity, as you suggest. I think if it was bought by a bank, you're right, may not be a fixed rate as low as UB but may not be far off. My main concern is that if it was bought by a fund, we would effectively be trapped and they could charge us whatever interest rate they choose, which would potentially be a disaster.

I remember from previous that the breakage fee can vary fairly widely from time to time based on their funding costs I think. Probably no harm requesting rate change letters periodically to monitor it, and if comes to a more affordable level, could go for it.

Thanks again
 
Are you able to save money now to repay capital if the time comes to bring you down to 80% loan to value.
 
It is highly unlikely that the mortgage book will be sold to an investment fund.

Most likely buyer is PTSB

So I wouldn't be fretting too much.

It could also take a year or more for any deal to be done, so the breakage fee will drop
 
I think could probably save very hard and using that and combination of savings, could get to the low 90s in terms of LTV, which may give some more options. As peemac has said, likely PTSB will buy it, which would be ok in terms of the rates they offer currently. My biggest concern is if a non bank lender buys it and only offers one rate of their choosing. Probably best for me to relax for a while and stop worrying about it and maybe get another rate offer letter in a few months and see if any further news at that stage in terms of destination.
 
Hillwalker123 said:
It would seem spending 13k to save 0.05% for 4 years is not a good deal. (actual saving would be approx 2200).
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RedOnion said:
If you end up on a variable rate is c. 3.9% that's an extra 14,300 interest per year. The 'insurance' against that is locking in a fixed rate now, but it'll cost 11k. So it's an 11k cost now to potentially protect you against c.45k extra interest.
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As highlighted by @RedOnion , it is not the 0.05% saving that you should judge the break fee against, it is the risk of a much higher variable rate that you can't get away from. The €13k over 4 years is €3.25k per year or equivalent to 0.3% of your balance. So effectively you are protecting yourself from any variable rate that is greater than 2.85% (2.55% + 0.3%). If you lock in the 5 year rate, it is more like 2.8%

Hillwalker123 said:
Probably best for me to relax for a while and stop worrying about it and maybe get another rate offer letter in a few months and see if any further news at that stage in terms of destination
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Yes, I don't think you should worry too much. Request a rate offer letter every couple of months to keep your options open but you don't have to act on any of them.

In the meantime, you could approach a broker to get an idea if any other lender would consider you but with an LTV > 100%, you probably won't get much better than the 2.55% on offer with UB
 

That's a good way of looking at it.
I think I will review it in about 4-6 months. Break fee may be less then.

Many thanks again for your advice.
 
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