End of Libor Mortgages?

by Readers Question

10:50 AM, 12th January 2021
About 2 weeks ago

End of Libor Mortgages?

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End of Libor Mortgages?

AS Libor linked mortgages are being phased out Lenders are working on an alternative arrangement.

Does anyone have any further information on the replacement benchmark?


From the FCA:

The interest rate benchmark LIBOR is expected to cease after end-2021. Firms must transition to alternative rates before this date.

Transition to alternative risk-free rates

Alongside the Bank of England, we are working closely with market participants to support the transition away from LIBOR in sterling markets, particularly through the Working Group on Sterling Risk-Free Reference Rates (RFR Working Group).

In April 2017, the RFR Working Group recommended a reformed version of the Sterling Overnight Index Average (SONIA) benchmark as its preferred near Risk Free Rate (RFR) for sterling markets. This rate is administered by the Bank of England. Following its recommendation, the RFR Working Group is now focused on catalysing a broad-based transition to SONIA in sterling bond, loan and derivatives markets.

SONIA offers a robust alternative to LIBOR. The rate is based on overnight interest rates in wholesale markets, so is close to a risk-free measure of borrowing costs. The rate is robust and anchored to an active and liquid underlying market. It can be compounded over a lending period to produce a term interest rate. There are a number of advantages to borrowers and other market participants from using near RFRs, compounded as appropriate.

Further information on the RFR Working Group.

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