Are KBC fixed mortgage customers being held to ransom?

KBC fixed-rate mortgage customers being told by their bank that (a) we’re leaving you, (b) we’re shifting you to Bank of Ireland whether you like it or not, and (c) if you don’t like it and wish to choose a different mortgage provider, you’ll be exiting your fixed-term agreement and will therefore be charged a break fee (generally a few thousand euro) The cheek!

If anything, KBC should be paying customers a break fee. This process of shifting KBC mortgage customers to Bank of Ireland has yet to receive ministerial approval, according to KBC’s automated service, so is there still time for this unfair clause to be rejected?

Mr P.G., email

I’ve received several letters — some quite vitriolic — from readers who are adamant that they do not want to be forced to transfer from either of KBC or Ulster Bank — both of which have announced they are leaving the Irish market — to a particular one or other of the remaining three domestic players. I have to say I am a little puzzled by it all.

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I’m conscious that people have an affinity with their banks; the statistics show this to be the case. People rarely move banks unless they have to which is why the banks go to such lengths to try to grab their custom when they start opening accounts in their own name, typically in college. But I think it is vaguely delusional to believe that one bank is fundamentally different from another.

They are all commercial organisations whose raison d’être is to make money out of their customer while keeping their costs as low as they can. The only thing really holding them back in either of these pursuits is competition from rival banks that keeps a lid on loan interest rates and a floor under the number of people or services that they withdraw.

AIB’s recent move to make more than half their branches around the State cash free (a decision it was forced to reverse) following similar moves by Bank of Ireland, shows that the floor is getting lower.

You cannot even form a relationship with a bank manager any more so there is precious little in the way of personal service in personal banking these days.

What we do have though are rules set in place by the regulators to ensure that customers are treated in a fair manner. And those rules state that whatever the terms and conditions of your mortgage under KBC, those will have to be replicated by Bank of Ireland, which is taking over the Belgian bank’s performing loans — ie ones like yours that are in order with no unaddressed arrears and regular payments being made in line with the terms of the loan.

Realistically, there will be no change for you. And if the loans didn’t go to Bank of Ireland for any reason, they would simply go to some other financial service provider under precisely the same rules.

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

The one thing that has stuck in the craw for many KBC mortgage holders is that they feel are being held to account on honouring the letter of their mortgage contract while KBC seems able and intent on walking away from its side of the bargain. To put it as you do, KBC is holding us to our terms or it will impose a break fee while they can cut and run without any recognition to us.

The nature of fixed-term loans is that money is borrowed in the market at a price to lend to you — or if it is not borrowed it is allocated to you at a time when it could have earned a certain rate elsewhere. A mortgage holder will only seek to break the contract because a lower rate is available, and that means the bank would be at a “loss” on the money it lent you over the balance of the term agreed.

So the bank charges the fee because it is at a financial loss on the agreed transaction; as explained above, even in any transfer, no KBC customer will be at a financial loss as a result of its departure from the market.

However, it appears there are options open to you. Following a piece a couple of weeks ago about the wisdom — and cost — of breaking a fixed-term KBC contract and locking into a longer-term mortgage before interest rates rose on the back of the ECB move, a reader was in touch with me. He said that he and other family and colleagues were all KBC fixed-term mortgage holders with several years left on their terms.

All had approached the bank recently — through brokers, I believe — on the issue of breaking their fixed term to switch elsewhere ... and none was charged any break fee. One of those involved had been quoted a substantial five-figure break fee a year previously.

I haven’t seen anything official on this from KBC but it does suggest that for those who feel strongly enough that they want to leave KBC before they find their loan moved to Bank of Ireland, or who just want to avail of a better rate, if that is still possible after the ECB rate rise, then they can do so without having to worry about break fees. You could say KBC is giving customers just the sort of break you seek.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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