Banks under fire for charging huge fees for breaking out of fixed rates
Banks have been accused of breaching EU regulations by quoting massive fees for mortgage holders who want to break out of a fixed rate to get a cheaper one.
The Central Bank has been called on to probe the fees, with the situation described as having the potential to turn into the next tracker-like scandal.
Some borrowers have previously locked in fixed rates of 4.99pc, but could now get a rate of 2.3pc. But some lenders are quoting more than €2,500 to break out of existing fixed contracts.
Founder of Askaboutmoney.com, Brendan Burgess, claimed the banks are breaching EU regulations. He said the Central Bank would "wake up in two years and discover this is a scandal like the tracker issue".
AIB was singled out by Mr Burgess as it is quoting huge breakage fees, while its subsidiary EBS often doesn't charge any fee.
AIB quotes up to €2,500 for those on a fixed rate to break out of it, a so-called redemption fee.
Homeowners who locked into fixed rates a few years ago are paying rates as high as 4.99pc. Ulster Bank has a two-year fixed rate of 2.3pc, with KBC offering a one-year rate of 2.9pc.
Mr Burgess said: "The banks are clearly operating outside the law."
He questioned how some banks could quote a breakage fee of zero and others wanted thousands of euro.
Mr Burgess advised people who are locked into high fixed rates to ask their lenders to quote a breakage fee. If it is high he said they should make a complaint to the financial services ombudsman.
The EU's 2016 mortgage credit directive means banks have had to change how they calculate a breakage fee when a mortgage holder wants to exit a fixed rate early.
Previously, banks calculated the fee based on the money they would lose until the end of the term from not getting the higher rate. It was also known as a prepayment penalty.
But the EU directive means they can only charge a penalty based on what they would earn from keeping the mortgage funds on deposit, the so-called interbank rate. As deposits are at or near zero, this means breakage should be very low, Mr Burgess said.
The Central Bank said it could not comment on individual banks, but was engaging with some lenders to ensure compliance with the terms of the EU regulations.
"If consumers are aware of any specific issues, the Central Bank welcomes all information which will assist it in fulfilling its objectives of regulating financial service providers and ensuring that the best interests of consumers of financial services are protected," the regulator said.
A spokesperson for AIB said AIB Bank and EBS have different breakage methodologies, which is as a result of their backgrounds as independent entities in the market.
The spokesperson said AIB, EBS and Haven do not impose any penalties or other administration fees for operational costs incurred in breaking a fixed rate mortgage contract over and above the break funding formula.
It said it does not make any profit from the application of breakage costs to customers.