Can my daughter walk out on fixed mortgage rate as lender is leaving the market?

I write on behalf of my daughter who currently has a five-year fixed-rate mortgage with KBC. The current fixed rate is due to expire in April 2024.

My query is this: is she obliged under her current fixed-rate agreement to transfer to the Bank of Ireland or can she choose another provider?

She has an opportunity to transfer to another provider who are offering her a five-year fixed rate at a very competitive rate.

I feel that KBC are not honouring their end of the agreement as they are no longer continuing to provide her with a mortgage.

Annuities or ARFs: what’s the correct decision?

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Also does she have to engage a solicitor? She has been in touch with Bank of Ireland and they seem to want to treat the transfer as a new mortgage and want valuations etc which incur costs.

Mr M O’S

When is a fixed-rate mortgage not a fixed rate? That really is the question of the day for thousands of homeowners who have fixed-rate mortgages with either KBC or Ulster Bank. With ultra-low rates over a prolonged period, locking into fixed rates has been a no-brainer for anyone not already on a tracker mortgage rate in the Irish market over recent years.

The deal was simple. You tied into a set rate and had the security of knowing exactly what you would be paying over the full period of the fix – from one up to 30 years depending on the mortgage provider and term chosen by the customer.

But if there was certainty for the customer, there was also certainty for the bank which could count on a regular stream of income from mortgage rates that, though cheap by Irish historical standards, were well in excess of the margin they could earn on average across euro zone markets.

The only downside of fixed rates is the threat of a substantial “break fee” if you choose not to honour the full term for which you have fixed.

And that’s the conundrum many customers of the departing KBC and Ulster Bank find themselves in right now. And, as you say, the widespread feeling is that, since the bank has not honoured its side of the bargain, it is a bit rich of them to expect borrowers to do so. Of course, this is not quite true. All customers on fixed rates will have those contracts fully honoured if they are moved by default as part of the Belgian bank’s winding-up of its Irish operation.

The only real issue is the rate that customers can expect to have on offer to them when their current fixed-rate period ends. People had many reasons for choosing KBC as their mortgage provider but, in recent years anyway, one of those was that the lender was very competitive on mortgage rates. The same cannot necessarily be said of Bank of Ireland which is where KBC’s mortgage customers are likely to find themselves when the dust settles.

Break fees

The good news is that I gather KBC is not imposing the break fees allowed for in its standard mortgage contract right now.

The last time this issue arose on this page, several readers who are KBC mortgage customers got in touch. This is what one of them had to say.

“I, along with family members and colleagues, all happen to have fixed-rate mortgages with KBC. It appears they are not currently charging any break rate fees, no matter what the remaining term is. I’ve six years to run and it’s zero. A colleague who was quoted €14k a year or so back to exit his fixed rate, was also quoted zero recently, as was my brother.

“We’re currently remortgaging and our broker has confirmed no KBC clients they are dealing with are now facing break fees.”

Now, it is not something I have heard KBC formally announce but it does certainly appear that if your daughter approaches the bank, she is likely to be able to break her fixed rate and make the move to the “very competitive” five-year rate that you say she is being offered elsewhere.

I am a little confused by your reference to Bank of Ireland and whether this is the lender offering your daughter this competitive rate or simply some confusion over what will happen as part of the bulk transfer of KBC loans to the rival bank.

Most KBC mortgages will move to Bank of Ireland by default. No valuation or other costs will be incurred by the borrower as part of this process. The loan simply moves across as part of a multimillion euro mortgage loan book and the mortgage is treated in precisely the same way as it is now – at least until the fixed-rate term is up.

Solicitor role

She is not obliged to transfer to Bank of Ireland but, if she chooses not to, she will need to act before the transfer takes place. Once her account is transferred to Bank of Ireland, it will most likely enforce any break fee clause on a subsequent early exit from the fixed rate before April 2024.

If she is switching other than via this “en masse transfer” – including to Bank of Ireland – then it is certainly possible that you could incur costs. It would be standard practice in mortgage switching for the new provider to require an updated valuation and there would also be legal matters in the switch that would require the modest involvement of a solicitor.

The figures involved are not significant in the context of a mortgage but they will amount to a four-figure sum. This is true regardless of which lender she switches to outside the mass transfer of policies – including any decision she makes to break her fixed rate and avail of any other Bank of Ireland rate.

So if she is talking about breaking the KBC contract to jump proactively to Bank of Ireland or anywhere else, then yes, there will be the above costs.

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