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05-03-2021, 09:51   #571
lawred2
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Did they both just ignore their published break fee calculators? How far were you into the fixed term?
actually you're right - I misread my UB contract. I thought they weren't using that calculator at all.

My contract says "break fee is 6 months interest"

But further down I've noticed it also says "or the early redemption charge whichever is lower..."

That must be the calculator

In both cases that we did exit - I was less than half the way through the fixed rate term
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05-03-2021, 09:58   #572
 
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Got a mortgage redemption figure today, 2.5 years into 5 year fixed at 2.95, €2778 breakage fee!
You'd be better off waiting the 2.5 years as Ulsterwill be that long and more winding down

Question,and apologies if its been asked already,can you transfer your business to the nearest branch if its actoss the border? Including the mortgage
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05-03-2021, 10:01   #573
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You'd be better off waiting the 2.5 years as Ulsterwill be that long and more winding down

Question,and apologies if its been asked already,can you transfer your business to the nearest branch if its actoss the border? Including the mortgage
Well not necessarily - that break fee will decrease over time.. At some point it can make sense financially to take the hit.

Might even make sense now to that poster.
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05-03-2021, 10:01   #574
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Question,and apologies if its been asked already,can you transfer your business to the nearest branch if its actoss the border? Including the mortgage
No - different legal entities (and currencies), essentially two different banks.
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05-03-2021, 10:24   #575
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I've never heard of a bank ignoring a break fee. I have heard of plenty of situations where the break fee calculation are zero.
Looking at the formula used by my provider (EBS) I don't see how the calculation would be ever zero except towards the end of the fixed rate term.
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05-03-2021, 10:25   #576
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Yeah be no point at this stage, hopefully when they're selling their loan book the might waive the fees!
what's your LTV?

KBC are paying 3K to switchers and have a 2.25% 3 year rate, you should be able to get the legal end done for a grand if you shop around.
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05-03-2021, 14:06   #577
Q&A
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Looking at the formula used by my provider (EBS) I don't see how the calculation would be ever zero except towards the end of the fixed rate term.
My break free had steadily increased over the last 18 months. The increase in break free is due to reductions in interbank rates.

I'm not sure what the EBS calculation says. lenders are required to only charge a break free equivalent to the cost they face due to the early repayment. If interbank rates/ funding costs have gone down since you borrowed you'll have a charge. If they have gone up the break free should be zero.

The following does a much better job of explaining it:

https://www.askaboutmoney.com/thread...-costs.204427/


Basically what the interbank rate was on the day you took out your loan versus today's rate will decide your break fee today.

So unless people have the exact same fixed rate mortgage (start date, term and break date) any personal experience discussed here are not directly comparable.

Last edited by Q&A; 05-03-2021 at 18:49.
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06-03-2021, 22:06   #578
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Do you know their "cost of funds" rate at the beginning of the fixed rate and their "cost of funds" rate today? - Its a very specific rate and I don't think EBS publish it

Ulster do publish it
Ulster Bank cost of funds rate last Thursday was 0.51%
Oct 1st 2020 it was 0.39%

The 0.51% looks to be a 3 year high,
https://digital.ulsterbank.ie/busine...-of-funds.html

so there should be no breakage fee to break a fixed rate that was taken out in the last 3 years. - That is this week's scenario. (rate is up 6 points from 0.45% since 21st Jan)
Cost of funds is only part of the total costs. There's also cost of risk(including credit, basis point and liquidity, ), cost of operations, regulatory levies and reg. capital requirements, plus banking license costs to name just a few. I love how people pluck a figure out of the financial report and run with their version of the story.

If UL are making so much money, why have they decided to withdraw so?
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06-03-2021, 22:10   #579
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Cost of funds is only part of the total costs. There's also cost of risk(including credit, basis point and liquidity, ), cost of operations, regulatory levies and reg. capital requirements, plus banking license costs to name just a few. I love how people pluck a figure out of the financial report and run with their version of the story.

If UL are making so much money, why have they decided to withdraw so?
that may be true, but to break a fixed rate it is only the cost of funds that is factored in to the break fee
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06-03-2021, 23:19   #580
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Cost of funds is only part of the total costs. There's also cost of risk(including credit, basis point and liquidity, ), cost of operations, regulatory levies and reg. capital requirements, plus banking license costs to name just a few. I love how people pluck a figure out of the financial report and run with their version of the story.

If UL are making so much money, why have they decided to withdraw so?
If it is a fixed rate mortgage there should be no basis risk unless the bank decided to run a unmatched book and if it does then the risk should be covered by its interest rate risk policy.

Any liquidity cost should be accounted for and allocated appropriately at a product level along with the operating costs of the business and the credit risk premium when setting the Margin for the loan.

The reason Ulster bank are not making money is mainly down to the capital it needs to hold because of the risks they took back in 07/08 and because they don't have the volume to remain profitable for their operating model. The alterative would be to invest in the operating model to make it more low cost and streamlined but Natwest obviously thought that this was not worth the investment and the funds could be used better elsewhere in the Bank.
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07-03-2021, 00:58   #581
kalych
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If it is a fixed rate mortgage there should be no basis risk unless the bank decided to run a unmatched book and if it does then the risk should be covered by its interest rate risk policy.

Any liquidity cost should be accounted for and allocated appropriately at a product level along with the operating costs of the business and the credit risk premium when setting the Margin for the loan.

The reason Ulster bank are not making money is mainly down to the capital it needs to hold because of the risks they took back in 07/08 and because they don't have the volume to remain profitable for their operating model. The alterative would be to invest in the operating model to make it more low cost and streamlined but Natwest obviously thought that this was not worth the investment and the funds could be used better elsewhere in the Bank.
All valid points...in theory. Have little to do with reality. The reason UL is not making money is not Capital costs. Capital allocation is merely ineffective, as they'd rather deploy that capital in the UK where they can get a better return. They're not 'losing' money per se by holding capital, just missing out on making more money.

The reason UL are losing money is tracker mortgages and the cost of remaining competitive (it costs and lower rates) which (trackers) leads to my initial point about basis risk. Banks don't really price basis risk at facility level, so if you've basis risk in trackers due to inability to adjust their pricing in line with real costs, you've basis risk on the entire book. You try to mitigate it with new lending, but will not eliminate it until trackers are off the book fully.

I don't really understand your point on product level allocation of risk? What if you mispriced it previously? Does it just disappear or do you think banks try to recover it's costs by other means for the backbook?

Last edited by kalych; 07-03-2021 at 01:05.
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07-03-2021, 01:12   #582
kalych
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that may be true, but to break a fixed rate it is only the cost of funds that is factored in to the break fee
This is true, shouldn't Boards in the evening as I misread your post completely. My apologies.
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07-03-2021, 01:29   #583
Timing belt
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All valid points...in theory. Have little to do with reality. The reason UL is not making money is not Capital costs. Capital allocation is merely ineffective, as they'd rather deploy that capital in the UK where they can get a better return. They're not 'losing' money per se by holding capital, just missing out on making more money.
It costs the bank money to hold Capital so yes they are losing out on money. It is not just about missing out on making more money. If the bank issue AT1 they will need to pay a coupon to attract investors, If they are holding retained earnings then they need to hold cash/bonds at a negative rate so they are loosing money.

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The reason UL are losing money is tracker mortgages and the cost of remaining competitive (it costs and lower rates) which (trackers) leads to my initial point about basis risk. Banks don't really price basis risk at facility level, so if you've basis risk in trackers due to inability to adjust their pricing in line with real costs, you've basis risk on the entire book. You try to mitigate it with new lending, but will not eliminate it until trackers are off the book fully.
The trackers will lower the NIM but are not the reason for losses. The costs of operating are to high and they are unable to cut these costs without significant investment and are very unlikely to return any profit in the low interest rate environment. They are not the only bank in Europe with this issue.

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I don't really understand your point on product level allocation of risk? What if you mispriced it previously? Does it just disappear or do you think banks try to recover it's costs by other means for the backbook?
My point is that bank will price customer lending based on Risk. If they calculate the risk incorrectly then they may make losses. How bank decides to price this risk will be down to the risk models they have deployed and the level of risk the Board are willing to accept. Back in 07/08 Ulster took onboard a lot of risk and are still paying the price today by having to hold more capital.
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07-03-2021, 10:08   #584
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Originally Posted by kalych View Post
Cost of funds is only part of the total costs. There's also cost of risk(including credit, basis point and liquidity, ), cost of operations, regulatory levies and reg. capital requirements, plus banking license costs to name just a few. I love how people pluck a figure out of the financial report and run with their version of the story.

If UL are making so much money, why have they decided to withdraw so?
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that may be true, but to break a fixed rate it is only the cost of funds that is factored in to the break fee
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This is true, shouldn't Boards in the evening as I misread your post completely. My apologies.
I think we're all wrong.

In their example it takes Jan 2014 & Jan 2015. there was only 0.1 difference in the published Cost of Funds, yet 1.13% difference in the figure they used.

This was a time when the new capital reserves regulations came in, which were lower than previously, (explaining the 1.13% difference that year) but still on average over twice eu average, so I suspect there is a different calculation of "mortgage cost of funds" in the inner workings of the banks.
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07-03-2021, 17:09   #585
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I think we're all wrong.

In their example it takes Jan 2014 & Jan 2015. there was only 0.1 difference in the published Cost of Funds, yet 1.13% difference in the figure they used.

This was a time when the new capital reserves regulations came in, which were lower than previously, (explaining the 1.13% difference that year) but still on average over twice eu average, so I suspect there is a different calculation of "mortgage cost of funds" in the inner workings of the banks.

I'm not sure what figure you're referring to - I.e where you're seeing 1.13%. In had a quick look back through the thread and didn't catch it. But the CRR is not your answer

The essential is that notionally the bank borrows money from the interbank market to lend to you. Say for 5 years. So the prevailing 5 year rate on that day is A. If after 2 years you want to break then the bank has to place your money back on the market - this time at the prevailing 3 year rate so that there is no maturity mismatch. The 3 year rate is B. The difference between the two is the basis of your break fee, unless B is higher than A. Yield curve shenanigans can mean that short term rates are higher if the market is pricing in particularly unusual activity, but typically the shorter term is cheaper - resulting in a fee being payable. A flat curve works for us consumers.


This has been the case since the mortgage credit directive came into force. That would override any contractual terms that predate the mcd.
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