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:
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. You will receive a letter notifying you of any change in the interest rate applicable to your loan and the amount of your new monthly payment. The following are examples of variable base rates that lenders use:
Product Margin – The interest rate applicable to your mortgage or loan may be comprised of a base rate, such as BBR or LSLR 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.
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.
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.
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:
If you are having trouble making your mortgage or loan repayments, or are concerned that you may have trouble in future, please contact our Customer Support 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 can explore with you how we may be able to help with your situation. For example, a temporary reduction in your payments may be an option. If, however, you do require legal, financial or monetary advice on your mortgage or loan, you should consider speaking to the Citizens Advice or someone authorised to provide financial advice.
Visit our Independent External Information section for further information.
LIBOR (the London Interbank Offered Rate) was discontinued at the end of 2021 which made it necessary to transition customers who had a LIBOR linked mortgage to a new reference rate. You would have received letters from us if this change impacted your mortgage.
You were impacted if your mortgage in November 2021 had a variable rate or would change to a variable rate after its initial fixed-rate period ended, that was calculated using LIBOR. All impacted customers would have received a letter before November 2021 to explain how we planned to manage the transition to a new rate.
LIBOR stopped being available for use after December 2021 so we needed to replace it in the calculation of your interest rate with a new rate that was as close as possible to LIBOR.
We replaced LIBOR in the calculation of your interest rate with a rate that is the same as the fall-back rate the Financial Conduct Authority (FCA) created to replace LIBOR. We used this approach so that you were not disadvantaged by the change. The rate that replaced LIBOR is called LSLR which stands for Lender Synthetic LIBOR Rate.
LSLR is named after Synthetic LIBOR, the fall-back rate created by the FCA as a replacement for LIBOR. LSLR is calculated in the same way as Synthetic LIBOR. It is calculated using independently published data on interest rates being paid in the market. As a result, LSLR will change as interest rates in the market change and we will not be able to influence the value of LSLR.
Synthetic LIBOR and LSLR are calculated using Term Sonia Reference Rate (TSRR), plus an adjustment of +0.1193%. The fixed additional amount of 0.1193% was determined as appropriate by FCA and is the average amount, over a 5 year period, by which LIBOR exceeded Term SONIA Reference Rate (TSRR).
If your mortgage was impacted, the changes to your mortgage terms and conditions, including the replacement of LIBOR with LSLR, happened in November 2021.
A fall-back rate is a rate of interest that can be used if the reference rate for a contract (mortgage) is unavailable for use, in this case LIBOR, and the lender has not been able to replace it with a new rate. The FCA reviewed the performance of LIBOR over 5 years to design its fall-back rate.
The FCA’s fall-back rate is only going to be published for a few years and so can only be used temporarily. By creating a rate that is calculated in the same way as the FCA’s fall-back rate and uses the same independently published information on interest rates, we avoid the problem of having to change your rate again when the FCA stops publishing the fall-back rate.
Like LIBOR, any variable rate is subject to change in line with the market conditions. LSLR has been designed to be as close as possible to LIBOR by ensuring the rate is the same as the fall-back rate set by the FCA. You will continue to receive notification of any changes to your interest rate and the impact this has on your mortgage as normal.
Yes, your interest rate will continue to be reviewed quarterly. Following each review, we will continue to notify you of any change in the amount you pay each month, or the interest that has been charged to your outstanding balance if your mortgage has reached the end of its term.
No, your fixed-rate period will continue as per the terms and conditions of your mortgage. When your fixed-rate period ends, you will move to a variable rate. If your mortgage was impacted by the change, the variable rate will be calculated using the new rate (LSLR).
Yes, the terms and conditions of your mortgage have been updated to replace LIBOR with the new rate, LSLR. Changes have only been made in relation to calculating your interest rate. Before November 2021 you would have received a document setting out the changes to your terms and conditions called ‘Changes to your Terms and Conditions’.
