Early termination of fixed term mortgage by lending bank

Real Estate
1

Hello

I have a question regarding early termination of fixed rate mortgages. It might not be entirely specific to this site, but given the amount of financial discussion I thought people might be able to weigh in.

Long story short: we have a 10 year 1.1% fixed rate mortgage at on a second home for a smallish sum (approx CHF200k). This was taken out in June 2022 and has run without issues since then - always paid fully, no questions on us, income, the property etc.

About two months ago we got a recorded delivery letter from the bank informing us:

  • they were terminating the mortgage early
  • demanding repayment of the capital by Sept

There was no explanation of why they were doing this in the letter. The didn’t seek to invoke any breach of contract term from the actual mortgage contract, which they obviously couldn’t as there was no fault at all on our side in any way. Instead they used a clause in the underlying general banking T&Cs that form a part of the mortgage contract, which allows termination of relationship without cause on either side.

We attempted to get some explanation from the bank but the main person at branch, who we’ve always dealt with, and has always be quite polite and professional was clearly unwilling to put anything on email (liability I assume). We had a call with them where his justification was they were a small bank and needed reduce exposure, and then some vague comments about second homes. This was patently absurd as they are actually a pretty big mainstream bank, and they are still offering similar mortgages still. However it seemed this was a decision that had come from ‘on high’ and probably a broad policy change. So we weren’t going to get to the truth through him.

Questions I have:

  1. Has anyone else ever heard of this happening? Obviously banks might pull plug on a mortgage if they have cause, especially if the rate they are locked in isn’t very appealing business. However there is no attempt to imply or claim that.

  2. The first question we get asked when approaching other banks etc is about the current arrangement, and my concern is that no matter how much we protest, they are going to assume we / the property is a bad risk if the current bank has terminated - even though this is absolutely not the case here.

  3. Any views of the legality of the bank doing this? Specifically using a clause from their general banking T&Cs to enforce early termination of a more specific mortgage contract

4. At this stage I wanted to find new offers, and then when this was settled, I planned to demand:

  • compensation equivalent to any interest rate difference over the remaining mortgage period (essentially what they would have asked from us if the situation was reversed)
  • if they refuse open a case with the Swiss Banking Ombudsman: https://bankingombudsman.ch/
  • possibly pursue legal action

How far we would go with any that is to be debated as it could be a lot of additional effort / costs.

Anyway any comments / thoughts would be most welcome.

BTW I haven’t specifically mentioned the bank name as my feeling is if we did wind up in court I wouldn’t want anything specific here to tie back to them. Not sure if that s just being paranoid

Cheers

Rick

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2

Even if you don’t mention the name of the bank here, it might be interesting to know for the other banks you are currently contacting. I see it as an early warning sign that they may not have enough regulatory capital which might lead to a bank run if trust is eroded somehow. Kind of like with Credit Suisse.

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First time I heard of this, never heard of this in my home country and wouldn’t have thought this possible unless a bank is defaulting.

First things I would check: the actual clauses, how they relate to each other and if they are legal / applied in a legal way.

Afaik (from my home country) mortgages can specifically not be terminated without cause from neither side (more specifically, termination from the borrower’s side makes them have to pay all mortgage interest calculated for all of the outstanding years) and quite obviously a general clause of the bank would not apply.

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4

maybe first is to check your T&Cs

5

If you would initiate a termination of your mortgage early, you would have to pay penalties of 100% of what is remaining in the contract. Time to consult the obdusman and a lawyer.

What a terrible situation to be in.

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Thanks all for replies. Looking more closely I can see they state in letter:

“Die GeschĂ€ftsbeziehung zu unserer Bank wird nach sorgfĂ€ltiger PrĂŒfung und gestĂŒtzt auf Art. 17 der allgemeinen GeschĂ€ftsbedingungen («KĂŒndigung der GeschĂ€ftsbeziehung») beendet.”

>>> The business relationship with our bank is being terminated following a thorough review and in accordance with Article 17 of the General Terms and Conditions (‘Termination of the business relationship’).

Then a basic description of the mortgage, then at end

“Die Zusammenstellung unserer offenen Forderungen gegen Sie sowie die Aufforderung zur RĂŒckzahlung erhalten Sie rechtzeitig vor FĂ€lligkeit.”

You will receive a statement of the outstanding amounts we are due from you, together with a request for repayment, well in advance of the due date.

This sounds ominous but it is unclear if this “simply” means repayment of the capital sum. Certainly I can’t see any way in which they could demand anything beyond that.

It also bizarre as it doesn’t specifically mention if they are also closing our bank accounts / savings accounts we also hold with them. The reading of the initial statement would suggest so.

The specific clause in bank T&Cs reads (in the English version):

17. Terminating business relationships
The Client and the Bank may terminate business relationships with
immediate effect. In this case, claims of the Bank are immediately due for
repayment. This shall be without prejudice to contrary written
agreements.
If the Client fails by a reasonable deadline to issue instructions as to
where the terminated assets are to be transferred, the Bank may
physically deliver or liquidate the assets. The proceeds of liquidation and
any assets will then, with liberating effect, be deposited with a court,
transferred to another account in the Client’s name or sent in a suitable
form to the Client’s last known address.

The only thing I can think, and this is very speculative, is that both myself and my wife moved fairly sizeable UK GBP inheritances through the bank a few months before this. The bank asked a bunch of questions about the source of the assets and we provided them with endless documents (wills, deeds of variation etc) to support source of funds. They seemed to be happy, or at least stopped asking, and then the funds were moved to another Swiss account

BTW we are dual Swiss / UK nationals, so it would seem very odd if this had somehow triggered them to think we were of dubious character etc, but it does seem somewhat of a coincidence.

7

Did you check whether there’s a clause in the mortgage agreement to the contrary or a legal requirement for mortgages to be excluded from that clause?

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8

Is it UBS?

They’ve been cancelling a lot of agreements and someone else wrote about this and they cancelled everything but honoured the fixed rate mortgage (but said there would be no renewal once it expired).

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9

My first thought too, especially if it’s a fixed rate mortgage. Banks could (ab)use this at will and en masse, to get out of mortgage conditions that have become unfavourable. That would create mayhem in the mortgage and real estate markets.

This sounds complicated and would probably require approval from higher up in the bank.

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10

Here’s the thread:

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11

Every demand will require approval from higher up. Still, even if not legally required, the bank might agree to settle if the demands are reasonable to avoid larger legal costs or reputational damage.

Baloise has the following GTC for fixed mortgages:

Die Kreditgeberin kann die Festhypothek sowie allfĂ€llige weitere Kredite zudem unter Einhaltung einer 3-monatigen KĂŒndigungsfrist ausserordentlich kĂŒndigen, falls: 


As mentioned by @Moustachienne and @San_Francisco Did you check the conditions of your mortgage contract for specifics about cancellation conditions? Of course, the overall GTC might superseed any mortage GTC. Still, canceling a banking relationship with a single private account of 10k CHF is very different from cancelling a banking relationship with a fixed term mortgage.
As for legal advice: If you have a legal protection insurance, that would be the perfect time to use it. Otherwise, legal advise will only help you if you are planning on asking for a compensation from your current bank. Legal advice will most likely not help you to keep the banking relationship with your current bank (i.e. revert the termination).

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Thanks all for the comments. On specific contract points, there is:

  • a fixed term mortgage agreement, which doesn’t have any legal / contract terms, aside from the loan amount, rate, termination date etc

- a transfer of ownership (collateral) contract that doesn’t really seem relevant

  • a basic loan (mortgage agreement)

The last of these contains a final clause:

  1. General Terms and Conditions
    In all other respects, the General Terms and Conditions (GTC) and the Bank’s current price list, which is published on the internet and
    available from the Bank, shall apply. The Bank reserves the right to amend the price list at any time, in particular in the event of
    changed market conditions or for other objective reasons.

So the hook seems to be that the can terminate the whole relationship and under Art 17 of the general T&Cs, and this then applies to the basic load agreement, and thus the fixed term aspect.

That all seems pretty dubious from a legal perceptive.

I just has a 30 min conversation with someone at the Swiss Banking Ombudsman and they were pretty helpful and reassuring in that:

  • they implied they didn’t think this seemed correct to try and terminate in this way

- all banks are barred from passing on / flagging concerns to other banks within Switzerland, so at the least we shouldn’t worry about a red flag making it hard to re-mortgage if it comes to that - though still need to come up with a plausible reason why we are terminating early, which doesn’t make us look bad

So if pushing back to bank doesn’t work, then next step before lega action would be to formally open complaint with Ombudsman. As people mentioned going for a full legal case, especially over what is probably CHF7-10k or costs is probably not worth it.

On another topic, having reviewed some of the notes we took when speaking to bank, it seems increasingly likely that this decision was triggered by us transferring significant inheritance sums from UK relatives (GBP 700k) into Switzerland / this bank, before moving them elsewhere to invest.

This likely resulted in them getting audit / anti money laundering requirements, and either that (falsely) flagged some concerns, or they took offence that we didn’t even dicuss investing with them but just moved money on. This is despite facts:

  • lived in CH 24 years, have Swiss citizenship, never had any financial issues of any sorts
  • I quite specifically asked them when adding the GBP account to the service, told them amounts, what we planned to do, and they said it was no issue.

Then 6 months later
 We could have flushed it via other banks we had or waited and sent direct to the final bank in Switzerland, so this is a warning to others


So for now my position in reply will be:

  • you can close the bank accounts, though this is unjustified
  • you don’t have right to back out of the mortgage early

I will send a letter on that basis and we will see the response. In meantime at least we can look for alternatives if we need to remortgage. If people have recommendations of people to go to for a 200k fixed term (10 year) or SARON mortgage (direct or broker) please do share them.

Thanks

Rick

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13

Great point, we do have legal protection in our RC, so that is a way to get some advice at least, over what the Ombudsman can do. As you say I can’t see trying to force them to honour the fixed term is easy legally, and given how they have treated us I’d rather walk away with some compensation.

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If I was working for the bank, I’d laugh at your face asking for compensation - unless I’d be legally required to honour the fixed term mortgage.

You can’t make up the money for such compensation out of thin air. Honouring the mortgage as was originally agreed upon is way easier and more straightforward. Unless there are overriding reasons that they really, realky want you gone ASAP - but as you describe it, there aren’t (you’re not even American or Russian).

15

I’m not a lawyer. But I would not state anything that you consider ok for the bank to do. This would give them a hock to justify anything. I would limit the letter to what you don’t agree with (cancellation of the mortgage. Maybe even adding the closing of the complete relationship, but definitely mention the cancellation of the mortgage). If you can find arguments in favor of your position that would be great. Unfortunately, you can’t seem to point to anything in the GTC. Was there anything else in the notes that you could use? I would not write about the GBP 700k transaction. Rather, state that you have always been in good standing, made the payments on time, never had any financial issues.

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16

Thanks for comment, not accepting anything seems a fair point.
Rather than dancing about, and having had some reassurance from the Ombudsman about what they can / can’t do, I’m happy to call out the bank as Raiffeisen.

The general T&Cs are here:
DE

EN ones those legally the DE would apply I assume: https://www.raiffeisen.ch/content/dam/www/rch/pdf/information-in-english/financial-institutions/basic-regulations-for-treasury-and-markets.pdf

So the only really relevant ones seem to be:

10 / 11 : legal compliance, restriction of services : however they haven’t restricted the transfer or specifically question legality of anything we’ve done at all

17: the clause they cite in letter. This is symmetric - i.e. either side can terminate.

In the actual security and basic loan agreement there are:

  • clause about interest compensation if we terminate early (normal and not relevant here)

  • early termination clauses for fault on our part:

8. Early Maturity

The security provider acknowledges that the Bank may terminate the underlying credit claim in whole or in part with immediate effect

before the expiry of the agreed fixed term, or without observing the standard notice period, and demand repayment if any of the

following conditions are met:

- there is a change in the ownership of the properties;

- in the Bank’s opinion, the value of the properties serving as security is reduced, either individually or collectively, or they no longer

provide sufficient cover, and the debtor fails to provide additional cover in the form of supplementary security within 30 days of being

requested to do so by the Bank;

- provisional or definitive builders’ liens are registered.

However none of that applies and they not claimed it does.

Then this basic agreement is tied to the fixed term product via a clause:

12. Product use and interest terms

The borrower may at any time make use of the fixed-term interest rate products offered by the Bank in connection with this mortgage loan. If the borrower takes out such products, the Bank shall provide the relevant product agreements. These form an integral part of this

There doesn’t seem to be a legal contract for the fixed term product, just a letter which specifies the conditions, and there is no mention of early termination etc in that at all. There is just a comment ‘If repayment of the mortgage is desired upon expiry of the product agreement, 
’ which isn’t relevant here as it’s not expired.

So my conclusion (also non lawyer) us

  • they can’t terminate mortgage for any default / issue on our part, or with property

  • the only way to terminate is to terminate the entire relationship under the general T&C clause, and apply this to everything

If it’s legal to use the general clause to end a fixed term contract in this way, that is one for lawyers / Ombudsman, but if they were allowed it would effectively nullify any fixed term mortgage. They could always just back out using it.

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17

Appreciate your point and it’s probably fair. My point would be to do a calculation based on any interest rate difference x years to run. So essentially the same calc as they would do if we backed out early (except they want full interest not just marginal difference).

However I take your point that it’s probably easier to try and force them to honour the mortgage to term than argue for that.

18

That adds a complexity, since each of their Regionalbanken having potentially their own T&Cs. Did you check that?

Of course, it would be the easiest for you. Still, I doubt that it will doable and that you will feel comfortable having this bank for the next for years for your mortgage.
Coming back to your letter, if you really want to stay with Raiffeisen, you should probably mention this in your letter. Thinking ahead, I’m unsure if you should already mention in your first letter that you expect a compensation if the bank still decides to terminate the mortgage. On the one hand, it would give the bank an excuse for the termination. On the other hand, it might be harder to ask for a compensation in a second stage. So far, you have not found anything that that the bank has done unlawfully, so your wish to continue the mortgage is just a wish.

19

The parts I quoted above are from our actually contracts (Deepl translation) aside from the linked T&C. This seems to be general - at least I can’t find any T&C more specific to the actual bank region.

So far, you have not found anything that that the bank has done unlawfully, so your wish to continue the mortgage is just a wish.

Maybe but it’s not clear what they are doing is lawful. It might be that turns out to be legally correct although I know there is a principle in law of ‘lex specialis derogat legi generali’ : Lex specialis - Wikipedia
which Swiss courts apply.

In this case if the stated term / duration is regarded as part of the specific fixed term contract (agreement), which to me seems logical, then under this I don’t see they can ignore it in their favour by the general termination clause in the more general T&Cs. This is basically what the Ombudsman hinted at when I spoke to them. However that is one for lawyers.

So I guess what I do is:

  • write and dispute their right to terminate the relationship and specifically mortgage in this way
  • state that if they don’t honour it I will seek compensation / legal redress

(As you state my preference is to have nothing more to do with them, but I don’t see I should just suck up the effort and cost without objection)

Of course this other issue is the clock is ticking. We need a new mortgage in place in the likely event they don’t agree to continue. Otherwise we will effectively be in default when they activate the termination and demand repayment. That would open us to risk of things like having to liquidate investments or even seizure of property which clearly we don’t want.

I will send a letter and loop back with any news.

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Well, if I were you, I would have send them a recorded delivery letter with a „no acceptance“ of their one-sided termination. The fixed mortage contract has - in my opinion - „Vorrang“ in comparison to the general T&C.

I would also bringing in, that Raiffeisen has to pay me a penalty, in case I have to refinance to worser conditions than signed in 2022.

Raiba ist absolutely not interested, that the story will go public. Work with (realistic) deadlines.

Change the bank, they do not want do keep you anyway.

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