Discussion: Should customers be let out of fixed rate mortgages?

Given the growing decrease in mortgage interest rates and the frustration from people who committed to fixed rate mortgages for a number of years, do you think that the Government will force the banks to enable such people to extricate themselves from the fixed contract without any significant financial penalty?

Or is this wishful thinking?

Re: Extrication from Fixed rate mortgage?

The latter, methinks.

Re: Extrication from Fixed rate mortgage?

I would not agree that the banks can just get away scot free. They got their bail out and we should get ours! I have been on to my bank and its clear they are not going to do anything without serious political pressure being applied.

The circumstances that were in place when many fixed rate deals were struck has changed beyond what anyone ever expected. So it seems only fair that the banks should revisit their policy given the huge changes that have happened. It will be for their own good if they work with people now to find middle ground on coming up with a fair market rate for these fixed deals.

I suspect that my bank has already refinanced my mortgage based on a much much lower rate than the fixed amount that was originally agreed to while I am paying while I still pay through the nose for a fixed rate mortgage.

Its up to all of us to pile the pressure on - sent a letter to the CEO of you bank and talk to your local TD. The banks are low on political capital at the moment and are relying on the government ie taxpayer to keep them afloat.

They CANNOT get away with this.

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I don't agree with the notion that banks should be forced to release everyone who wants out from a fixed rate. By doing so you restrict the bank's ability to make a profit. Ultimately the person who pays for that will be the tax-payer.

In my view, unless you were mis-sold a product, or you are in very serious financial trouble such that you cannot make your mortgage payment, you should not be released from a fixed rate mortgage without paying your penalty.

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Would you be calling for this if rates had have gone the other way, up up up ???? You would be secure with your rate of 4% while banks would be paying 10% or whatever........... I think not ! You signed up to the fixed rate and knew the risks (or at least you should have). Deal with it and move on !

Re: Extrication from Fixed rate mortgage?

Teknon said:

Would you be calling for this if rates had have gone the other way, up up up ???? You would be secure with your rate of 4% while banks would be paying 10% or whatever........... I think not ! You signed up to the fixed rate and knew the risks (or at least you should have). Deal with it and move on !

Click to expand...

No of course I wouldn't if the rates went higher than my current 5.4% fixed interest rate, however, as Sanne said we are bailing out the banks for years of mismanagement and corruption.

The deductions in interest rates from the ECB have been unprecedented. Since we are currently bailing out the banks, it is only fair that it is reciprocated.

If we weren't bailing out the banks, I wouldn't feel so strongly that the Government should assist people who wish to extricate themselves from fixed rates.

At the end of the day, fair is fair. Fianna Fail and the banks have brought shame on this country.

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I think the phrase "bailing out the banks" is misleading to some extent. I think the guarantee scheme, which hasn't been called on yet, was a bail out yes, or will be a bail out if it is called upon before the time limit runs out. Under the recapitalisation scheme, the govt will expect a return on the money put into the banks which ultimately goes back to the tax payer. It's not like the banks were just given a big lump of money and told to go off and do what they like with it.

I do think the banks need to be sent a strong message on how to deal with people who are in genuine and severe financial difficulty, and I think, given the context, those people should be dealt with generously.

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Kate10: "the govt will expect a return on the money put into the banks which ultimately goes back to the tax payer."

What direct impact will this have on tax payers?

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you can't expect people to simply change their fixed mortgages to variable, however I think it's daft that they will not allow people to pay lump sums off a fixed loan at 5.4% and and the same time pay huge coupons on the recent bonds they have issued (or received from the Gov)

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As far as I know, the banks are obliged to pay a fixed rate of return to the govt for money invested in the banks through the re-capitalistation scheme. In other words, unless the banks fail, the govt will make a profit on the deal. That profit goes directly into govt coffers to be spent like any other govt income, therefore benefiting the tax-payer.

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Kate10: "That profit goes directly into govt coffers to be spent like any other govt income, therefore benefiting the tax-payer"

Yes, I really have faith that this government will distribute any such profit equally and fairly

The Government has demonstrated flexibility by changing its rules re the banks (ie bailout), so the banks could easily assist people who are trapped in high fixed rate mortgages.

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"so the banks could easily assist people who are trapped in high fixed rate mortgages."

Why? Unless I am missing something, you took a gamble, it did not work in your favour...................I don't understand it - you're aggrieved because things did not work in your favour.........and because the banks got a bailout as otherwise they'd go under and our economy would collapse, you want a bailout too?

Does not compute.

mf

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Firstly, I doubt there is a get-out-of-jail card in the offing on this, no matter how many letters of righteous (or otherwise) indignation are written to politicians and banks. Fundamentally you sat down and (probably with the short view in mind that you wanted to be guaranteed repayment amount for a period of time) agreed to a term of repayments at a fixed rate. The bank will of course have tried to maximise their risk coverage by charging you a premium rate for the privilege of knowing your repayments. That they proved lucky and you unlucky has nothing whatsoever to do with the "bailout" of the banks. You chose the risk you wished to endure (of course those who didn't opt were left with the uncertainty of what they will be repaying in the future), it is now not so palatable as it was then but in essence it is the same risk you were happy to sign up to. Cry as you might - the circumstances are changed, they are unprecedented ... no they aren't, they are difficult but they aren't unprecedented. Rates have dropped previously (and by large differentials to!). Leads to the rule of thumb - don't fix for long periods. Interest rates change at a higher frequency than the terms of fixed payment periods.

Secondly, there is an implication both in what you said and sanne said that the rates the banks are paying are ECB - this is not necessarily true so it is a fallacy to assume they are paying so much less than they were.

I would concur with Nalah - it is not so unreasonable to make it possible to pay off a percentage of the capital as a lump sum.

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If interest rates had gone the other way you'd be sitting pretty on your 5 % and wouldnt be budging off your fixed interest rate. I had a fixed interest rate that came to an end last year and i was left with a choice , do i fix again? or do i take a chance and not fix?. Took the latter choice and the rest is history . Its all about taking a gamble and hoping you pick correctly. Why should the banks give up on their profit?. Swings and roundabouts

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The other thing to mention is that, in most cases, penalties go up as rates come down. We fixed last year (at 5.35%) and broke out again four months later, paying the small penalty due at the time (about €800) because we thought that rates would continue to drop - it seemed to be the consensus at the time. If we had waited our penalty today would be around €25,000 so we would be stuck.

What I'm trying to say is that a lot of people waited too long. There were opportunities to break out when rate cuts started and were predicted to continue. I don't know why people waited. Maybe they didn't believe that rates would continue to fall. Maybe it was due to inertia. Or maybe they didn't understand how penalties are calculated. However, the choice was there, and many people chose to stay with their fixed rates.

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People didn't leave/move as many don't pay attention to what the ECB announces. Most people only become aware of anything liek this when the "media" start reporting on it.

I for one am in a fixed rate (18 months through it now) and while I'm "losing" out now, I was gaining at the time. Anyway, I had no choice when getting the mortgage, the lender would only give me a fixed. When rates were above what I'm on, I was "winning". Remember, rates can go up as well as down.

I stayed on mine as at the end of the tunnel, there's a light....which is the tracker I come off on to

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I am on 5.85% 5yr fixed last year in August. My bet was that interest rates will raise over the next years (and I was not alone in betting on this) but bad luck so far
However, I would have fixed that 10 or even 15 years if the bank would have done that.
I was offered 4.65% in April last year so I wasn't too impressed by the bank when the best they could offer in August was 5.85%.
But: It was my decision. I do not cry for mammy (or the government in this case) because life is unfair.
And when interest rates go through the roof end of next year I will be laughing...

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It is always worthwhile to imagine yourself standing in front of a high court judge. Running your emotionally charged argument. And being told that you are quite wrong.

Listen to what you are being told. You are on a hiding to nothing.

mf

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Moody, the crowd who rate banks and countries, have cut the rating of nearly all banks in Ireland (12 in total), this will mean (its the start) it will cost these banks more to borrow. Banks dont get money from the ECB, so the ECB rate isn't all that relevant. After todays news i would say there is even less chance of getting them to break fixed rates.

I have sympathy for anyone on a high fixed rate, as its just not a nice situation for the average Joe/Jane to be in. But unless you start to default on you mortgage, nothing will be done by the gov or banks, why would they? The banks are in dire straights and if they're making more money off you, they're not going to bend over backwards for someone who is making the payments. The gov is having to pump more money into the banks, so their not likely to ask the banks to stop taking this money. I'm sorry but that just the way it is, you gambled and lost, its as simple as that.

Also, has anyone enquired about dropping to a lower fixed rate. i.e. you have 5 years left on a 5% fixed mortgage, but their current 5 year rate is 4%. Its not as good as the standard variable but the breakage fee will be less and the new rate will probably be a better gamble as rate will rise in 2/3 years. Something to consider.

Re: Extrication from Fixed rate mortgage?

I usually hold the opinion that if you enter into a contract with your eyes open, you must deal with the consequences if it doesn't go your way.

But on this issue, I feel there is some merit in a proposal for a once-off amnesty where owner-occupier mortgage-holders get a brief "window" of time to break out of a fixed rate entered into prior to October 2008 without penalty.

In Brian Lenihan's Budget speech, he said "The Government has decided that from the 1st of May, Mortgage Interest Relief for principal private residences should only be available for the first seven tax years of the mortgage. I believe this move is justified given the significant recent reduction in interest rates and in house prices."

He is using the rate decreases as a justification for a reduction in TRS, but those on a fixed rate don't benefit from such decreases.

The ECB rate cuts were designed to stimulate the economy, but this aim will be diluted by all those on fixed rates.

As has been said before, these are unprecedented times - perhaps there is scope for one more unprecedented action?