What is LIBOR and how does it affect mortgages?

Published ¤ 16/11/2011 15:57:04

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LIBOR, or London Inter-Bank Offered Rate, is the average interest rate that leading banks in London charge when lending to other banks.

Within the context of mortgages, it is the UK Sterling 3-month LIBOR rate that is important. It is this rate which many UK lenders use to determine their mortgage rates.
So, what has happened to LIBOR over the last year, and how is this affecting the mortgage market?
What is LIBOR
Between February and August 2011, the 3 month LIBOR rate remained relatively stable, at around 0.83%. During this time we saw many of the lowest mortgage rates appear on the market.
Since August the Libor rate has steadily climbed, to over 1% in November. This is mostly due to the uneasiness around the Eurozone, but has meant that the cost of borrowing for many mortgage lenders has increased significantly over the last 3 months.
This has meant that many mortgage lenders have begun increasing their rates, even though the Bank of England base rate has remained at 0.5%. Many withdrawing their best rates at very short notice.
For instance, a month ago the lowest 2 year fixed rate was 1.99%, whereas now it is 2.24% - an increase of 0.25%. Some lenders have increased their rates by over 0.5%!
Nobody knows how the Eurozone crisis will end, nor how it will continue to affect the LIBOR rates. But one thing is for sure, if you want to secure the lowest fixed rate mortgage, then it would be best to seek advice sooner rather than later.
Find out how LIBOR has affected the best mortgages by checking our Best Buys or source a mortgage using our mortgage comparison tool. If you need advice, just call us on 0845 226 5009 to discuss your requirements in confidence.

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