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My mortgage & bbalibor

What is it and how does it affect me?

While the Bank of England sets official base rates, bbalibor reflects the actual cost for banks to borrow money from each other.  Mortgages which have rates set to bbalibor will be influenced by movements in these rates, which do not necessarily always closely reflect movements in the Bank of England base rate.

What exactly is bbalibor?

bbalibor stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow unsecured funds from each other in London.

bbalibor is the most widely used benchmark for short-term interest rates. It is set by Thomson Reuters and released to the market each day after 11am.

Is my mortgage linked to bbalibor?

Check with your bank or your mortgage documentation. There are several ways that lenders can calculate your monthly payment, with only certain mortgages being linked directly to bbalibor. Those that are should make this clear.

Which bbalibor rate?

There is more than one bbalibor rate. 150 LIBOR rates are published to the market each day, for ten different currencies and, within each of these currencies, 15 maturities.

Each bbalibor rate is defined in terms of currency and maturity, for example “three month sterling bbalibor”.

It is very important to ascertain which bbalibor rate your mortgage is set against.  This will be clearly defined in your mortgage contract. If you are unable to locate the exact rate then you should speak to your lender.

Premium

On top of the bbalibor rate used to reference your mortgage, each mortgage lender charges a set premium based on your individual circumstances at the time your lender offered your mortgage. This premium will vary between different borrowers but will be a set amount above the relevant bbalibor rate.

Mortgage rate resetting

For mortgages underpinned by bbalibor, the monthly payment rate will be recalculated at regular set times throughout the life of the mortgage. You will then pay the new set rate until the next recalculation. This usually happens every three months, although some mortgages have different periods between recalculations. For example, if your mortgage resets on the 16th November and is set against three month sterling bbalibor, then your mortgage from 16th November to the 16th February will be set at the rate of three month sterling bbalibor on the 16th November (plus the premium as described above).

How can I keep track of bbalibor rates?

You can find current bbalibor rates in reports on the Thomson Reuters website (www.reuters.com), other data vendor websites, or printed in the Financial Times/ Wall Street Journal and related newspapers on a one day delay.

You can also follow us on Twitter for free daily updates of the three-month Sterling BBA LIBOR rate: twitter.com/BBALIBOR

bbalibor movements

As premiums are a fixed value above bbalibor rates your mortgage repayments will be directly affected by the value of bbalibor at the reset date.

bbalibor reflects the rates at which banks can fund themselves and will be influenced by changing market conditions. In periods of financial stress, the cost of a bank’s own borrowing may increase, which could in turn cause bbalibor to increase.  Conversely, bbalibor may decrease as levels of financial stress ease.

 
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