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Interest Rates

Interest Rates

Your mortgage terms and conditions or loan agreement will stipulate how the lender calculates the interest rate charged on your mortgage. The calculation method used will depend on the type of mortgage product you have with your lender. The following are typical types of mortgage product:

Product Types

  • Variable – If the interest rate is variable, it may increase or decrease in accordance with the terms and conditions of your mortgage or loan agreement. The interest rates for variable mortgages are typically based on a variable base rate plus a set product margin. See below for a fuller explanation of these features.
  • Fixed – If the interest rate is fixed, it will not increase or decrease even when the variable base rate associated with a product such as BBR or LIBOR changes. At the end of the fixed period, the interest rate will usually revert to the relevant variable base rate plus a set product margin.
  • Discounted – If your interest rate is discounted, your monthly payments can go up or down with the relevant variable base rate, but you receive a discount on this interest rate for a set period of time. At the end of the discounted period the interest rate will usually revert to the relevant variable base rate plus a set product margin and the discount no longer applies.

Variable Base Rates

Unless your mortgage is currently in a period where a fixed interest rate applies (see Product Types above), the calculation of your interest rate typically involves the use of a variable base rate. Your interest rate will be recalculated at regular periods throughout the life of your mortgage or loan. The following are examples of variable base rates that lenders use:

  • Bank of England Base Rate (BBR) – This is the rate the Bank of England sets every month and publicly announces.
  • London Inter Bank Offered Rate (LIBOR) – This is the rate at which banks borrow funds from each other in London. As there is more than one LIBOR, it is important to check your mortgage terms and conditions or loan agreement to be sure which LIBOR your mortgage or loan is set against. If you require further information regarding the setting of LIBOR, please select the currency as GBP, and the date of your choice to display the relevant rates: https://www.theice.com/marketdata/reports/170

LIBOR is expected to cease to be available in its current form for use by mortgage lenders after December 2021. On 24 November 2021 we will replace LIBOR with our Lender Synthetic LIBOR rate (LSLR). Impacted customers will receive a letter explaining this change. For more information about this change please see below “LIBOR Transition: Your Questions Answered“.

  • Lender Synthetic LIBOR rate – Lender Synthetic LIBOR Rate (LSLR) is the interest rate that will replace LIBOR in our existing mortgage contracts. 

LSLR will equal LIBOR whilst LIBOR continues to be published in its current form. After 31 December 2021, when LIBOR stops being published, LSLR will equal the fall-back rate being developed by the FCA that would apply to mortgages in which LIBOR has not been replaced by a new rate.

  • Standard Variable Rate (SVR) – This rate is set by your lender and moves up or down at the lender’s discretion. The lender’s decision may include consideration of changes in the BBR or other published rates.

Current Variable Base Rates

LIBOR LSLR BBR SVR
0.11% effective from 1 December 2021 0.07% effective from 1 September 2021 0.1% effective from
2 April 2020
2.79% effective from 1 March 2010

Lenders apply changes in interest rate from the date the change becomes effective, the effective date of the most recent change is shown above. If a change affects you, it will be reflected in your next contractual monthly instalment after the change.

Product Margin – The interest rate applicable to your mortgage or loan may be comprised of a base rate, such as BBR or LSLR or a lender’s SVR, plus a product margin (e.g. SVR + 2%). The product margin is fixed and would have been based on the products the lender had available at the time your lender offered your mortgage.

If you have any queries about how the relevant interest rate applies to your mortgage or loan, please contact our Customer Services Department on 0333 300 0426.

When will my monthly payments change?

Where the interest rate applicable to your mortgage or loan is a variable interest rate, we will notify you of any rate change by letter 10 days in advance of it affecting your monthly payment. The applicable interest rate will become effective from the date shown in your letter, and the change will be reflected in your next contractual monthly instalment.

Will the rate change next month?

That will depend on whether any variable interest rate applicable to your mortgage or loan changes. Whether it changes is dependent on factors outside of the lender’s control. What we can say is that you will be notified of any rate change 10 days before it affects your monthly payment. Your rate may also change if you have come to the end of a fixed or discounted interest rate period.

Why have my payments increased?

If a variable interest rate applies to your mortgage or loan, your payments will increase if this variable rate increases. Alternatively your monthly payments may have increased because you have come to the end of a fixed or discounted interest rate period. Please refer to your mortgage offer or credit agreement for further details. A payment change could be due to any or all of the following:

  • Changes in the repayment method
  • Fees that have been applied to the account

My payments have increased and I cannot afford to meet the repayments?

If you are having trouble making your mortgage or loan repayments, or are concerned that you may have trouble in future, please contact our Customer Support Department on 0333 300 0468 as soon as possible.

Whilst we cannot offer legal, financial or monetary advice, we will consider your personal and financial circumstances and can explore with you how we may be able to help with your situation. For example, a temporary reduction in your payments may be an option. If, however, you do require legal, financial or monetary advice on your mortgage or loan, you should consider speaking to the Citizens Advice or someone authorised to provide financial advice.

Visit our Independent External Information section for further information.

LIBOR Transition: Your Questions Answered

We will be transitioning customers who have a LIBOR linked mortgage product to a new reference rate. There is no need to contact us, if you are impacted by this change you will receive more detail in writing.

Am I impacted?

You are impacted if your mortgage has a variable rate that is calculated using LIBOR (the London Interbank Offered Rate) or your mortgage will have a variable rate calculated using LIBOR after its current fixed-rate period ends. All impacted customers will have received a letter by November explaining how we will manage the position.

Why are you changing my mortgage rate?

During the variable rate period of your mortgage, the interest rate you pay is calculated using the London Interbank Offered Rate (LIBOR). LIBOR will not be available in its current form for use after December 2021 so we need to replace LIBOR in the calculation of your interest rate with a new rate that is as close as possible to LIBOR. LIBOR is going to stop being published because of regulatory concerns that it may not always reflect interest rates being paid within the market.

Which rate is replacing LIBOR?

After LIBOR stops being available in its current form, we will replace it in the calculation of your interest rate with a rate that is the same as the fall-back rate the FCA is creating to replace LIBOR. We are using this approach so that you are not disadvantaged by the change. The rate replacing LIBOR is called LSLR (Lender Synthetic LIBOR Rate).

What is LSLR?

LSLR stands for Lender Synthetic LIBOR Rate. It is named after the fall-back rate being created by the FCA as a replacement for LIBOR, that is called Synthetic LIBOR. After LIBOR ceases to be published, LSLR will be calculated in the same way as Synthetic LIBOR by using the same independently published data on interest rates being paid in the market. As a result, LSLR will change as interest rates in the market change.

We will not be able to influence the value of LSLR. Details on LSLR including the current rate can be found above.

When will you make the changes to my mortgage?

We need to make the changes to the terms and conditions of your mortgage ahead of 31 December 2021.

The change to your mortgage terms and conditions, including the replacement of LIBOR with LSLR, will apply from November 2021.

LSLR, like LIBOR, will be reviewed on a quarterly basis. LSLR will equal LIBOR whilst that rate continues to be published during 2021. From 1 January 2022, when LIBOR is no longer published in its current form, the calculation method will change so LSLR equals the fall-back rate being developed by the FCA to replace LIBOR. This means there will be no immediate change to your interest rate and the new calculation method for LSLR will not apply to your mortgage until after the first 3-month review of interest rates in 2022.

By way of example, let’s say that your interest rate tracks LIBOR and that:

  • Your mortgage has the interest rate set once every three months and after November the next two rate resets are due on 1 December 2021 and 1 March 2022 with the new rate applying from the 1st of the following month;
  • The rate review on 1 December 2021 will be based on LSLR with LSLR calculated to equal LIBOR so the new interest rate applying to your mortgage from 1 January 2022 until 31 March 2022 will be the same as if the review had continued to use LIBOR as its reference rate; and
  • The rate review on 1 March 2022 (and at all subsequent 3 monthly reviews) will be based on LSLR, calculated to equal the fall-back rate being created by the FCA to replace LIBOR and the rate calculated in this way will apply from 1 April 2022. 

As we do now, we will write to you after each rate review confirming the new interest rate on your mortgage together with any changes to your payment amount.

What is a fall-back rate and how did the FCA develop the fall-back rate?

A fall-back rate is a rate of interest that can be used if the reference rate for a mortgage is unavailable for use, in this case LIBOR, and the lender has not been able to replace it with a new rate. The FCA reviewed the performance of LIBOR over the last 5 years to design its fall-back rate.

Why have you chosen not to use the FCA’s fall-back rate for my mortgage?

The FCA’s fall-back rate is only going to be published for a few years and so can only be used temporarily. By creating a rate that is calculated in the same way as the FCA’s fall-back rate and uses the same independently published information on interest rates, we avoid the problem of having to change your rate again when the FCA stops publishing the fall-back rate.

Will my new rate be higher than my current rate?

At the point of replacement, the rate we move you to will be the same as the variable rate applicable to your mortgage immediately before the switch. Please see question ‘When will you make the changes to my mortgage?’ for more information about when the new rate will be effective.

Will my rate always be the same as it would have been using LIBOR?

Like LIBOR, any variable rate is subject to change in line with the market conditions. LSLR has been designed to be as close as possible to LIBOR by ensuring that after LIBOR stops being available in its current form the rate is the same as the fall-back rate set by the FCA. The FCA reviewed the performance of LIBOR over the last 5 years to design its fall-back rate. You will continue to receive notification of any changes to your interest rate and the impact this has on your mortgage as normal.

Will you continue to review my interest rate quarterly?

Yes, your interest rate will continue to be reviewed quarterly. Following each review, we will continue to notify you of any change in the amount you pay each month, or the interest that has been charged to your outstanding balance if your mortgage has reached the end of its term.

I’m in a fixed-rate period, will my fixed rate be affected?

No, your fixed-rate period will continue as per the terms and conditions of your mortgage. When your fixed-rate period ends, you will move to a variable rate. The variable rate will be calculated using the new rate (LSLR) if your fixed rate ends after November when we have replaced LIBOR. If your fixed-rate period ends before LIBOR is replaced, your variable rate will initially be calculated using LIBOR and will then change in November to be calculated using the new rate (LSLR).

Am I able to make a choice on which rate I am transferred to?

No, we will replace LIBOR with the same rate for all customers. As detailed above, we will calculate the interest payable on your mortgage using the reference rate we feel is the most appropriate and is the same as the FCA’s fall-back rate.

Does this change the terms and conditions of my mortgage?

Yes, the terms and conditions of your mortgage have been updated to replace LIBOR with the new rate, LSLR. Changes have only been made in relation to calculating your interest rate. Our letter to impacted customers enclosed a document setting out the changes to your terms and conditions ‘Changes to your Terms and Conditions’.

What are my options if I don’t want to move to this new rate?

As LIBOR will not be available in its current form after December 2021 it is not possible for your interest to continue to be calculated using LIBOR.

If you do not want to accept LSLR replacing LIBOR in the calculation of interest on your mortgage you can redeem the mortgage by repaying the loan in full or remortgaging. 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. If you are considering remortgaging 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:

Citizens Advice

www.citizensadvice.org.uk

Advice UK

www.adviceuk.org.uk

Money Helper

www.moneyhelper.org.uk

 

0800 138 7777(English)

 

0800 138 0555(Welsh)

 

WhatsApp +44 77 0134 2744

 

Should you wish to make a complaint, you can do so by contacting us on 0333 300 0921.

Do I need to do anything now?

No, you do not need to do anything now.

Where can I find out more information?

Further information about LIBOR can be found on The Financial Conduct Authority website www.fca.org.uk.

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