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8. LIBOR replacement
What is LIBOR?
LIBOR stands for London Interbank Offered Rate.
It is the rate at which major banks can borrow from one another in the interbank market (over periods of overnight, one week, two weeks, one month, three months, six months and twelve months) and for many years has been used as a key interest rate benchmark across a wide range of financial products including mortgages.
Why is LIBOR ceasing?
The LIBOR benchmark relies on estimates from banks of their borrowing costs in markets which are no longer active, so international regulators no longer considered LIBOR sufficiently robust or sustainable given its widespread use.
In July 2017 the Financial Conduct Authority (FCA) announced that by the end of 2021, the FCA would stop compelling panel banks to submit their quotes for LIBOR and made clear that financial institutions must transition impacted customers to alternative rates before that date.
LendInvest BTL Limited (LendInvest) (in line with other lenders and financial institutions) is therefore proceeding on the basis that LIBOR will not be available in its current form after end-2021 and is moving customers onto a safer and more transparent benchmark rate.
What does this mean for me?
If you have a mortgage where the interest rate is calculated by reference to LIBOR, this will be switched to a robust alternative rate on 1 January 2022.
We have considered the alternative rates available and have decided to switch our customers from LIBOR to the Bank of England Base Rate (Bank Rate).
Changes will have to be made to your mortgage documentation to provide for Bank Rate to replace LIBOR as the reference rate against which interest on your mortgage can be calculated.
What is the Bank Rate?
The Bank Rate is the official interest rate set by the Bank of England’s Monetary Policy Committee (the MPC).
You can find out more about the Bank Rate (including the current Bank Rate) here: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
Am I going to pay the same amount?
The FCA has made it clear that LIBOR transition should not be used to move customers with LIBOR linked mortgages to replacement rates that are expected to be higher than what LIBOR would have been, or otherwise introduce inferior terms.
We have chosen Bank Rate to replace LIBOR as we expect this will result in you paying no more than you would have paid if LIBOR had continued in its current form.
Like LIBOR, Bank Rate is a variable rate, so may increase or decrease in the future. We will tell you about any future changes to Bank Rate and the impact of this on your monthly payments in the same way as we would have done for LIBOR.
We currently review LIBOR on a series of quarter dates and set the interest rate on your mortgage on these dates which applies for the following quarter.
When your interest rate is switched to Bank Rate, we will pass on any changes in Bank Rate on the day on which they are announced instead.
What are my options if I don’t want to move onto the new rate?
As LIBOR will not be available, in its current form, after 31 December 2021 it is not possible for the interest rate on your mortgage to continue to be calculated using LIBOR.
If you don’t want Bank Rate to replace LIBOR in the calculation of interest on your mortgage you can redeem the mortgage by repaying the mortgage in full or switch to an alternative product offered by us or another provider.
If you are considering one of these options, please contact us. We can provide you with a redemption statement that will explain the amount that needs to be repaid and any early repayment charges that may apply.
You may want to get some financial advice when deciding what is the best option for you.
Free confidential and impartial advice is available from a number of organisations, including:
Money Advice Service
0300 500 5000 or www.moneyadviceservice.org.uk/en