Market Update – edition 358
Subject:
• End of LIBOR
• Introduction of SONIA
• Discounted Rates and why they trick best buy tables
Discounted Rates:
- Look closely at
o When was the lenders SVR changed
o What is it linked too
o Does this suit your risk appetite if it is the cheapest rate? (better to fix?)
End of Libor
- Why LIBOR ended
o In 2012, many major banks were implicated in a LIBOR rigging scandal -, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS).
o Therefore LIBOR will be phased out by 30th June 2023, with SONIA introduced for one week – two month from 31st Dec 2021, so you will see this as a benchmark from now on
- How does this impact mortgages?
o Very limited. Only really Private Bank, Development, Commercial and some Buy To Let deals tend to be linked directly to LIBOR. For the vast majority of mortgages, The Bank of England Base rate has been the main indices for variable rates for some time
Discounted Rates
- For more common that banks link mortgages to their own SVR (Typically between 3-5%)
- Lenders set their own variable rate and do not have to follow the BoE, but typically do
- Therefore a Discounted mortgage is a reduction off this for a period of time, typically 2 years
o Why is this so important? In a rising interest rate environment these deals often top Best Buy tables, but that can be as
The lender hasn’t updated their SVR yet
Also there is a risk that may go higher than the BoE
This is why we aren’t a fan
Market rates:
Jan 6th change Term
1.428% 0.139% 5 year SWAP
1.351% 0.141% 2 year SWAP
0.483% 0.244% 3 mth LIBOR
0.25% 0.000% BoE
Best Rates:
2 Year Variable from 0.99% (discount from H&R, Tracker NW)
2 Year Fixed Rates from 1.09%
5 Year Fixed Rates from 1.37%
BTL Rates from 0.99%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Source: Twenty7Tec January 2021
