Are fixed KBC mortgage customers ransomed? – The Irish Times

KBC fixed rate mortgage customers are told by their bank that (a) we are leaving you, (b) we are transferring you to Bank of Ireland whether you like it or not, and (c) if you don’t and you want to choose another mortgage provider, you are going to get out of your fixed-term contract and you will therefore have to pay a severance indemnity (usually a few thousand euros) The nerve!

If anything, KBC should pay customers a break fee. This process of transferring mortgage customers from KBC to Bank of Ireland has not yet received ministerial approval, according to KBC’s automated service, so is there still time to reject this unfair clause?

Mr. PG, e-mail

I have received several letters – some quite vitriolic – from readers who are adamant that they do not want to be forced to transfer from KBC or Ulster Bank – both of which have announced that they are leaving the Irish market – to an individual or the other of the three remaining national players. I must say that all of this leaves me a little perplexed.

I am aware that people have an affinity with their banks; statistics show that it is. People rarely change banks unless they have to, which is why banks go to such lengths to try to grab their clientele when they start opening accounts in their own name, usually in the ‘university. But I think it is vaguely illusory to believe that one bank is fundamentally different from another.

These are all business organizations whose raison d’être is to make money with their customer while keeping their costs down for as long as possible. The only thing that really holds them back in either of these activities is competition from rival banks who maintain a ceiling on loan interest rates and a floor under the number of people or services they withdraw.

AIB’s recent decision to make more than half of its branches around the state cashless (a decision it was forced to reverse) following similar action by the Bank of Ireland, shows that the floor goes down.

You can’t even build a relationship with a bank manager anymore, these days personal service in personal banking is valuable.

What we do have though are rules put in place by regulators to ensure customers are treated fairly. And these rules state that whatever the terms of your mortgage with KBC, these will have to be replicated by Bank of Ireland, which takes over performing loans from the Belgian bank – that is, those like yours which are in order with no unaddressed arrears and regular payments made in accordance with the terms of the loan.

In reality, there will be no change for you. And if the loans didn’t go to the Bank of Ireland for whatever reason, they would just go to another financial services provider under exactly the same rules.

The only limiting factor going forward is that for those looking to switch mortgages, there will be fewer choices and, with the European Central Bank having now started raising interest rates, only the more expensive ones.

The only thing that has remained in the palm of the hand for many KBC mortgage holders is that they feel held responsible for honoring the letter of their mortgage contract while KBC seems able and determined to give up its share of the market. To put it like you do, KBC forces us to our terms or will charge a break fee when they can cut and run without any recognition to us.

The nature of fixed-term loans is that the money is borrowed in the market at a price to be loaned to you – or if not borrowed, it is allocated to you at a time when it could have earned a certain rate somewhere else. A mortgagee will only seek to break the contract because a lower rate is available, which means the bank would be at a ‘loss’ on the money they lent you over the remainder of the agreed term.

Thus, the bank charges the fee because it suffers a financial loss on the agreed transaction; as explained above, even in the event of a transfer, no KBC customer will suffer any financial loss as a result of leaving the market.

However, it looks like you have options. Following an article a few weeks ago about the wisdom – and cost – of breaking a fixed-term KBC contract and locking in a longer-term mortgage before interest rates rise following the decision of the ECB, a reader contacted me. He said he and other family members and colleagues all held KBC fixed-term mortgages with several years remaining on their terms.

All had approached the bank recently – through brokers I believe – about breaking their fixed term to move elsewhere…and none were charged a break fee. One of those involved had been quoted a substantial five-figure severance pay a year prior.

I haven’t seen anything official about this from KBC, but it does suggest that for those who wish to leave KBC before having their loan transferred to Bank of Ireland, or simply wish to qualify for a better rate, if this is still possible after the ECB rate hike, they can do so without having to worry about termination fees. You could say that KBC offers its customers exactly the kind of break you are looking for.

Please send queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or email [email protected]. This column is a reading service and is not intended to replace professional advice

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