Five Questions About: Libor

 

What's Libor?

It's the London Interbank Offered Rate, but everyone knows it as Libor. It's the interest rate that lenders pay to borrow from each other.

This is the rate that Barclays has been fined £290m for rigging?

That's it. The US Commodity Futures Trading Commission said the bank had acted "in its own self-interest by attempting to manipulate these rates for profit".

Is that relevant to me?

Yes. Libor affects mortgage rates, particularly short-term trackers. Rather than using the base rate to price trackers, lenders use Libor because it looks to the future. So the three-month Libor is based on the expected base rate of the Bank of England in three months' time.

How does that affect mortgages?

Lenders often raise the cash they use for mortgages on the Libor market. They then add charges to cover risk and admin before setting the mortgage rate they offer customers. When rates rise, that's often because Libor has gone up, rather than base rate.

Does Barclays' activity mean I may have paid extra for my mortgage?

It's unlikely. The FSA says there were only attempts to rig interest rates rather than actual rigging. However, Which? says that if people have lost out, banks should compensate borrowers.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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