Property owners and developers face paying penalties of as much as 23pc of their loans simply to cancel long-dated interest rate swaps, according to research by advisers CBRE.
The \”gigantic\” break fees are hindering vital bank restructurings that aim to put property firms on a sounder footing and help support Britain\’s recovery.
What, you mean that hedging products actually hedge things? Bit of a shocker, finding the UK banking system selling something that actually does what is advertised on the tin.
Isn’t the substance of the complaint that the banks sold a product that didn’t do what was advertised on the tin – by changing the tin, rather than the product?
That’s what mis-selling constitutes.
Of course, that doesn’t prove that they did it, just that that is what is alleged.
Is this because the mark on the trade is against them, or because there is a “cancellation fee”?
I think the thrust of the article is towards miss-selling. How can some poor builder be expected to understand a swap? How can the swap last longer than the loan? Do we, otoh, expect bankers to understand how to develop and let property?
Well, yes, I suppose we do,as so much property is now owned by the banks.
That seems to be saying that the reason why it’s expensive to get out of these contracts is that the mark is strongly against the fixed-rate payers.
I have no sympathy for a property developer who entered into a fixed-for-floating swap without bothering to understand the rather simple terms of the contract.
How can some poor builder be expected to understand a swap?
Of course, poor builders never exploit anyone who doesn’t understand the finer points of their trade.
Any such bank is almost certainly hedged itself (banks rarely take positions in the market) so if it waived the borrower’s break fee would find itself out of pocket when its own swap counterparty demands its (matching) break fee.