LIBOR FAQs

How we are making the transition away from LIBOR

We are making changes to some of our borrowers’ mortgages and terms and conditions, and we are advising them to contact their mortgage intermediary should they require advice.

The interest rate linked to some of our customers’ mortgage accounts is currently calculated with reference to the London Interbank Offered Rate for three-month sterling deposits determined on a particular day (LIBOR). LIBOR is due to cease immediately after 31 December 2021. As we are required by our regulator to move all our customers’ mortgage accounts where the interest rate is calculated with reference to LIBOR to an alternative reference rate, we currently anticipate moving their mortgage accounts to a rate of interest which will be calculated with reference to the Bank of England Base Rate (BBR).

Should regulatory guidance change prior to the cessation of LIBOR in such a way to make it inappropriate to use BBR as the alternative reference rate, another alternative reference rate may be used.

If a mortgage account currently refers to LIBOR as its reference rate, we will write to the borrower individually before 31^st December 2021 to explain how the changes will affect their mortgage account and their mortgage terms and conditions.

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).

LIBOR FAQs

What is LIBOR?
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.
Why do lenders have to move customers away from LIBOR rates?
The decision to cease the use of LIBOR is a decision that has been made by the financial regulators, and all banks, lenders and financial institutions are required to move their customers to an alternative reference rate when LIBOR ceases at the end of 2021.
What does this mean for the affected borrowers?
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 will write to them directly to confirm:
- The alternative reference rate against which interest on their loan will be calculated
- When that change will take place
- Why we have chosen the alternative reference rate
- Any changes we need to make to their Mortgage terms and conditions to effect the required changes
- 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.
On what date will affected mortgage accounts be switched to the alternative reference rate?
Currently, our LIBOR referenced mortgage accounts have their interest reviewed and where appropriate reset on a quarterly basis in March, June, September and December in each year. LIBOR is due to be reset for the last time on the 13th December 2021, which means that, interest on those mortgage accounts could be reset on that date and could continue at that interest rate up to the next review date in March 2022. It is our intention to move our borrowers to an alternative rate on or before the 1st April 2022.
Could a mortgage be switched to the alternative reference rate before the 1st April 2022?
In line with regulator guidelines, we may switch our customers before this date. Our aim is to act reasonably and switch our customers so they receive a fair outcome at the time of the transition. In view of the significant number of accounts that need to be switched, we will be making the switch for all affected customers on that same date and unfortunately it isn’t possible to switch an account on an individual basis.
What is LIBOR rate now?
All our mortgage accounts that reference LIBOR are currently 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 the 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 on their last rate change letter and their annual statement(s).
What is Bank Base Rate now?
The current Bank Base Rate in the UK can be found here: https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate.
Will borrowers pay the same amount as they did previously?
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 are writing to each customer individually about any changes to their mortgage account.
To avoid transitioning, can borrowers repay their mortgage early without penalty?
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.
What if a borrower does not want to change their mortgage terms and conditions?
Unfortunately, the change to the mortgage terms and conditions are necessary due to the change required to be made by the Regulator. Borrowers have been advised to contact their financial advisor for advice on their choices based on their individual circumstances.
Will the borrowers’ mortgage documentation need to change?
Unless their mortgage will be 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 be communicating with all borrowers individually regarding these changes.
How do I know if a client’s mortgage currently references LIBOR?
You will be able to establish whether the mortgage currently references LIBOR from:
1. The Mortgage Offer
2. Any interest rate change letters and/or
3. 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.
Does this affect new mortgage applications?
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).
If I have any further questions, who do I contact?
Mortgage intermediaries can call the broker desk on 0344 770 8032 and borrowers can call Customer Services on 0344 770 8030 to discuss.
Where can I find more information?
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