LIBOR is an interest rate benchmark that's being phased out. If your mortgage uses LIBOR, find out what you should expect to happen and what you need to do.
September 2024 update: All LIBOR settings have now permanently ended.
On 4 January 2022, there was a change in the way interest rates are calculated for the small proportion of UK mortgages that still use LIBOR.
If you’re affected, your lender will let you know. But you may also be able to find this information in your mortgage documents, such as your mortgage offer, or terms and conditions.
LIBOR is being phased out
LIBOR is an interest rate benchmark that's been used to calculate interest payments for some mortgages.
But since the borrowing between banks, which LIBOR used to aim to measure, happens much less than it used to, LIBOR is being phased out.
Now, if your mortgage uses LIBOR, the interest rate needs to be calculated in a different way.
What LIBOR ending means for your mortgage
Most UK mortgage interest rates aren’t calculated using LIBOR.
If you do have a mortgage that uses LIBOR, your lender may need to change the terms and conditions to change the way the interest rate is calculated. If they do, they’ll tell you about this. They may also need to ask for your consent to make these changes. If they do, you’ll need to respond.
There are several ways that your lender might change the interest rate calculation, but whichever way they choose must be fair for you. We've said that, when choosing replacement rates, customers shouldn't be moved to replacement rates that are expected to be higher than LIBOR would have been.
For example, they may choose a different rate to reference instead of LIBOR, such as the Bank of England base rate, or a rate known as SONIA.
SONIA (Sterling Overnight Index Average) is a widely used measure of interest rates, that’s also closely linked to the Bank’s base rate.
If you have any questions about your mortgage, contact your lender for more information.
If your mortgage hasn’t moved to a different rate
From the start of 2022, LIBOR has continued in a temporary, 'synthetic' form. This is to allow time for lenders to make arrangements to replace LIBOR in mortgage contracts, for example, while they decide on a fair alternative calculation and ask for your consent to make a change. This avoids the risk of mortgage contracts no longer working because payments can’t be calculated.
But Synthetic LIBOR is a temporary solution and won’t last forever. So, it’s important that you respond to your lender when they contact you about moving away from LIBOR.
Calculating Synthetic LIBOR
Synthetic LIBOR is calculated by measuring the average difference between LIBOR and SONIA over 5 years, from 2016 to 2021, and then adding that average difference to SONIA.
This difference between LIBOR and SONIA was therefore fixed after the end of 2021.
This method is recognised as a fair way of calculating a replacement rate for LIBOR, both in the UK and in other countries.
Synthetic LIBOR and mortgages
Like LIBOR in its previous form, Synthetic LIBOR will change over time.
For example, you can expect it to go up (or down) if the Bank's base rate goes up (or down).
Due to how Synthetic LIBOR is calculated, there may have been a small increase in your mortgage payment in January 2022 compared with December 2021.
