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Interest Rates

Interest Rates

Your mortgage terms and conditions or loan agreement will stipulate how the lender calculates the interest rate charged on your mortgage. The calculation method used will depend on the type of mortgage product you have with your lender. The following are typical types of mortgage product:

Product Types

  • Variable – If the interest rate is variable, it may increase or decrease in accordance with the terms and conditions of your mortgage or loan agreement. The interest rates for variable mortgages are typically based on a variable base rate plus a set product margin. See below for a fuller explanation of these features.
  • Fixed – If the interest rate is fixed, it will not increase or decrease even when the variable base rate associated with a product such as BBR or LIBOR changes. At the end of the fixed period, the interest rate will usually revert to the relevant variable base rate plus a set product margin.
  • Discounted – If your interest rate is discounted, your monthly payments can go up or down with the relevant variable base rate, but you receive a discount on this interest rate for a set period of time. At the end of the discounted period the interest rate will usually revert to the relevant variable base rate plus a set product margin and the discount no longer applies.

Variable Base Rates

Unless your mortgage is currently in a period where a fixed interest rate applies (see Product Types above), the calculation of your interest rate typically involves the use of a variable base rate. Your interest rate will be recalculated at regular periods throughout the life of your mortgage or loan. The following are examples of variable base rates that lenders use:

  • Bank of England Base Rate (BBR) – This is the rate the Bank of England sets every month and publicly announces.
  • London Inter Bank Offered Rate (LIBOR) – This is the rate at which banks borrow funds from each other in London. As there is more than one LIBOR, it is important to check your mortgage terms and conditions or loan agreement to be sure which LIBOR your mortgage or loan is set against. If you require further information regarding the setting of LIBOR you may wish to visit the British Banking Association’s Website at www.bba.org.uk
  • Standard Variable Rate (SVR) – This rate is set by your lender and moves up or down at the lender’s discretion. The lender’s decision may include consideration of changes in the BBR or LIBOR.

Current Variable Base Rates

LIBOR BBR SVR
0.30% effective from 1st June 2017 0.25% effective from 4th August 2016
2.79% effective from 1st March 2010

Lenders apply changes in interest rate from the date the change becomes effective, the effective date of the most recent change is shown above. If a change affects you, it will be reflected in your next contractual monthly instalment after the change.

Product Margin – The interest rate applicable to your mortgage or loan may be comprised of a base rate, such as BBR or LIBOR or a lender’s SVR, plus a product margin (e.g. SVR + 2%). The product margin is fixed and would have been based on the products the lender had available at the time your lender offered your mortgage.

If you have any queries about how the relevant interest rate applies to your mortgage or loan, please contact our Customer Services Department on 0333 300 0426.

When will my monthly payments change?

Where the interest rate applicable to your mortgage or loan is a variable interest rate, we will notify you of any rate change by letter 10 days in advance of it affecting your monthly payment. The applicable interest rate will become effective from the date shown in your letter, and the change will be reflected in your next contractual monthly instalment.

Will the rate change next month?

That will depend on whether any variable interest rate applicable to your mortgage or loan changes. Whether it changes is dependent on factors outside of the lender’s control. What we can say is that you will be notified of any rate change 10 days before it affects your monthly payment. Your rate may also change if you have come to the end of a fixed or discounted interest rate period.

Why have my payments increased?

If a variable interest rate applies to your mortgage or loan, your payments will increase if this variable rate increases. Alternatively your monthly payments may have increased because you have come to the end of a fixed or discounted interest rate period. Please refer to your mortgage offer or credit agreement for further details. A payment change could be due to any or all of the following:

  • Changes in the repayment method
  • Fees that have been applied to the account
  • Insurance premiums

My payments have increased and I cannot afford to meet the repayments?

If you are having trouble making your mortgage or loan repayments, please contact our Collections Department on 0333 300 0468 as soon as possible.

Whilst we cannot offer legal, financial or monetary advice, we will consider your personal and financial circumstances and may be able to help with your situation. If, however, you do require legal, financial or monetary advice on your mortgage or loan, you should consider speaking to the Citizens Advice Bureau (CAB) or someone authorised to provide financial advice.

Visit our Independent External Information section for further information. Also, click here to read a copy of the Consumer Financial Education Body (CFEB) guide.

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