LIBOR FAQs

LIBOR is the London Interbank Offered Rate which is the rate at which banks lend money to each other and is commonly used as a benchmark for setting interest rates for example those interest rates charged on loans and mortgages.

We have written to all impacted customers informing them of the changes and that the LIBOR interest rate reset on 13 December would be the last time the interest rate applicable on their mortgage account would be calculated using LIBOR as the reference rate. 

Since May 2020, all new Foundation Home Loans products, including Product Transfer products, have been based on, or revert to, an interest rate which refers to Bank Base Rate (BBR).

The decision to cease the use of LIBOR is a decision that was made by the financial regulators, and all banks, lenders and financial institutions were required to move their customers to an alternative reference rate when LIBOR ceased at the end of 2021.

The regulator requires that all existing mortgage contracts whose interest rate is set by reference to LIBOR must have the terms of their contract switched to a robust alternative reference rate.

If a borrower currently has a Foundation Home Loans mortgage with an interest rate calculated referencing LIBOR, changes will have to be made to their mortgage to provide an alternative reference rate against which interest on their loan is calculated.

If their mortgage currently references LIBOR, we have written to them directly to confirm:

• That the alternative reference rate against which interest on their loan will be calculated is Bank of England Base rate (BBR)
• That the change will take place on or before 1 April 2022

• Why we have chosen BBR as the alternative reference rate
• Any changes we need to make to their Mortgage terms and conditions to effect the required changes (if relevant)
• How this change will impact their mortgage payments
• What they need to do

Borrowers who have a mortgage that is not LIBOR linked do not need take any action and will not be affected by these changes.

LIBOR ceased on 31 December 2021 and customers’ mortgage accounts that were previously calculated with reference to LIBOR are now calculated by reference to BBR.  Having reviewed all of the alternatives, we have found Bank of England Base Rate (BBR) to be the most appropriate replacement reversion rate for our borrowers.

We have chosen BBR for the following reasons:

• Like LIBOR, it is a variable rate so it may increase and decrease in the future (although, whilst LIBOR is reviewed quarterly in March, June, September and December in each year, BBR is not reviewed on fixed quarterly dates and is set by the Bank of England from time to time);
• Changes to BBR, when they occur, are communicated and published to consumers widely;
• It is easily understood;
• It is transparent and visible;
• We have assessed BBR to be no more volatile than LIBOR and to be a reasonable and comparable reference rate to LIBOR assessed over a period of 5 years.

We have now moved our borrowers to an alternative rate calculated with reference to BBR.

We have written to impacted borrowers to confirm:

• Any change in the interest rate applicable to their mortgage account, and the date from which that change will take effect and be applied to their mortgage account; and
• Notice of any change in the amount of their monthly payment before the new amount is due.

All our mortgage accounts that reference LIBOR were set to reflect UK Sterling 3-month LIBOR on the 12 March, 12 June, 12 September and 12 December (or where relevant the next business day thereafter) in each year. The rate applied to any mortgage account will be the rate that 3-month LIBOR was set at on a quarterly date together with any margin added to LIBOR which is specified in the Mortgage Offer document. Borrowers can find out the rate of LIBOR which is applied to their account (and any margin) from their last rate change letter and their annual statement(s).

Their current mortgage payments will not change until the end of the fixed rate period stated in the mortgage offer. The mortgage payments are calculated using the fixed interest rate until the end of the fixed rate period.

Thereafter, in accordance with their mortgage terms and conditions, the interest rate applied to the mortgage account will revert to Bank Base Rate (BBR) + a margin (which is also stated in the mortgage offer). As BBR changes up or down, so will the interest rate applied to the mortgage account.

For example, if BBR rises to 1% and the margin stated in the offer is 4.99% per annum, the interest rate applied to the mortgage account would be 5.99%.

If BBR rises to 1.25%, using the same margin of 4.99%, the interest rate applied to the mortgage account will be 6.24% per annum.

Example 1:

If your mortgage interest rate is currently a fixed rate of 3.49%, which ends on 31^st September 2022

£200,000 loan outstanding, on a fixed rate of 3.49% until 31^st September 2022, calculated on an interest-only basis:

[payments may vary slightly based on fees and month]

May 2022 mortgage payment = £579.98

June 2022 mortgage payment = £579.98

July 2022 mortgage payment = £579.98

August 2022 mortgage payment = £579.98

September 2022 mortgage payment = £579.98

October mortgage payment (assuming BBR is 1% p.a and the margin is 4.99% p.a, the rate of interest would be is 5.99%) = £993.37

November 2022 mortgage payment (assuming no change in BBR meaning the interest rate applied to the mortgage account remains at 5.99%) = £993.37

The example above is shown for illustrative purposes only. Please be advised that there is maximum rate to which the Bank of England Monetary Policy committee may set Bank Base Rate.

To calculate a monthly mortgage payment based on the borrower’s current fixed rate, you can access the calculator here. The borrower’s fixed rate is on the latest mortgage statement. [payments may vary slightly based on fees and month]

What if my fixed rate has ended?

If the borrower’s fixed rate has already ended, the borrower’s mortgage now references the Bank of England Base Rate.

Examples:  £200,000 loan outstanding, on the Foundation Home Loans standard variable reversion rate 4.99% + Bank Base Rate (BBR), calculated on an interest-only basis: 

Mortgage payment (assuming BBR is 0.75% so Foundation RR is 5.74% = £952.11

Mortgage payment (assuming BBR is 1% so Foundation RR is 5.99%) = £993.37

Mortgage payment if BBR rises to 1.25% so Foundation RR is 6.24%) = £1,034.62

Please be advised that there is no top limit to the rate to which the Bank of England Monetary Policy committee may set Bank Base Rate.

Please note that these examples do not include any additional fees which the borrowers may have added to their loan.

To calculate a monthly mortgage payment based on current interest rates and your margin, you can access the calculator here https://www.foundationhomeloans.co.uk/payment-info/payment-calculator/. You’ll need the borrowers’ last rate change letter or the latest mortgage statement to tell you their margin.

You can see the current BBR here https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate and Synthetic LIBOR can be found here https://www.theice.com/marketdata/reports/170 (please select GBP “synthetic” methodology)

LIBOR ceased on 31 December 2021.

Synthetic LIBOR is an adjusted form of the LIBOR rate compiled from estimates submitted by banks, used by banks and lenders to compare at a theoretical level what LIBOR might have been had it continued.

The current rate of synthetic LIBOR can be found here https://www.theice.com/marketdata/reports/170 (please select GBP “synthetic” methodology)

The current Bank Base Rate in the UK can be found here: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

If the interest rate on an account is currently set at a fixed rate, the interest rate will not initially be affected. Only the way in which the interest rate will be set after the fixed rate period ends will be impacted.

In the case of a variable rate mortgage, for example a discounted rate or a rate of interest which is set by reference to LIBOR, it will, following the switch, refer to the alternative rate, so the monthly payments may change.

We have written to and will continue to write to each customer individually about any changes to their mortgage account including their monthly payments.

This depends on their individual mortgage contract. Borrowers can contact the customer services team on 0344 770 8030 to find out if they are able to repay their mortgage loan early without penalty.

Unfortunately, the change to the mortgage terms and conditions are necessary due to the change required to be made by the Regulator. Borrowers are advised to contact their financial advisor for advice on their choices based on their individual circumstances.

Unless the mortgage was fully repaid by the end of December 2021, the terms and conditions of affected mortgages will be varied if they reference LIBOR. Like all mortgage lenders, we are working to make this process as seamless and simple as possible and we will continue communicating with all borrowers individually regarding these changes.

We have now transitioned the mortgage accounts which previously referenced LIBOR to now referencing the Bank of England base rate (BBR).

You can see what reference rate a mortgage refers to from:

• The Mortgage Offer
• Any interest rate change letters and/or
• Their annual statements

If you are still unsure, mortgage intermediaries can call us on 0344 770 8032 and borrowers can call on 0344 770 8030 to discuss.

No. We no longer offer any LIBOR referenced mortgages. The interest rate on all of our new mortgage products is referenced to Bank of England Base Rate (BBR).

Mortgage intermediaries can call the broker desk on 0344 770 8032 and borrowers can call Customer Services on 0344 770 8030 to discuss.

You can read more about the transition from LIBOR at the websites of:

The Financial Conduct Authority https://www.fca.org.uk/markets/libor

The Bank of England  https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor