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. You will receive a letter notifying you of any change in the interest rate applicable to your loan and the amount of your new monthly payment. 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.
  • Lender Synthetic LIBOR rate – Lender Synthetic LIBOR Rate (LSLR) is the interest rate that has replaced LIBOR in our existing mortgage contracts.

    LSLR equals the fall-back rate developed by the FCA to apply to mortgages where the lender has not be able to replace LIBOR with a new rate. For more information about LSLR please see below “LIBOR Transition: Your Questions Answered”.
  • 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.

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

LIBOR (the London Interbank Offered Rate) was discontinued at the end of 2021 which made it necessary to transition customers who had a LIBOR linked mortgage to a new reference rate. You would have received letters from us if this change impacted your mortgage.

How do I know if I was impacted?

You were impacted if your mortgage in November 2021 had a variable rate or would change to a variable rate after its initial fixed-rate period ended, that was calculated using LIBOR. All impacted customers would have received a letter before November 2021 to explain how we planned to manage the transition to a new rate.

Why did you change my mortgage rate?

LIBOR stopped being available for use after December 2021 so we needed to replace it in the calculation of your interest rate with a new rate that was as close as possible to LIBOR.

Which rate did you replace LIBOR with?

We replaced LIBOR in the calculation of your interest rate with a rate that is the same as the fall-back rate the Financial Conduct Authority (FCA) created to replace LIBOR. We used this approach so that you were not disadvantaged by the change. The rate that replaced LIBOR is called LSLR which stands for Lender Synthetic LIBOR Rate.

What is LSLR and how is it calculated?

LSLR is named after Synthetic LIBOR, the fall-back rate created by the FCA as a replacement for LIBOR. LSLR is calculated in the same way as Synthetic LIBOR. It is calculated using independently published data on interest rates being paid in the market. As a result, LSLR will change as interest rates in the market change and we will not be able to influence the value of LSLR.

Synthetic LIBOR and LSLR are calculated using Term Sonia Reference Rate (TSRR), a publicly available rate, plus an adjustment of +0.1193%. The fixed additional amount of 0.1193% was determined as appropriate by FCA and is the average amount, over a 5 year period, by which LIBOR exceeded Term SONIA Reference Rate (TSRR).

When did you make the changes to my mortgage?

If your mortgage was impacted, the changes to your mortgage terms and conditions, including the replacement of LIBOR with LSLR, happened in November 2021.

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 contract (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 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 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 the rate is the same as the fall-back rate set by the FCA. 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. If your mortgage was impacted by the change, the variable rate will be calculated using the new rate (LSLR).

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. Before November 2021 you would have received a document setting out the changes to your terms and conditions called ‘Changes to your Terms and Conditions’.