This Libor Thing

[Crispy Ambulance]

Trying to get my head around how big the artificially fixing of Libor could be.

Lets say Mr A has a mortgage with Bank B who set his monthly payment of £600 at in interest rate linked to (over-stated) Libor. His bank increases his monthly payment to £800 stating that a Libor increase is costing them more to borrow so they have to pass on the cost. He can't afford the extra amount and falls into arrears. He is unable to pay the arrears, the Bank (eventually) obtain a Possession Order and evict him.

If, as a result of the forthcoming reviews and enquiries into the banks colluding into setting artificially high Libor, Bank B are found guilty of charging Mr A a higher amount than he should have been paying (thus resulting in arrears/reposession), would he have any recourse towards Bank B and how would he go about raising a case/claim against them?

Secondly, how would the actual amount he should have been paying each month be determined (assuming that the monthly payment of £600 was linked to a dodgy Libor in the first place)?

Assuming there's lots of Mr A's similarly impacted (although not always ending up in repo), is there a potential that the financial repercussions will make successful PPI claims seem like loose change in comparison?

 

[Hiney]

There will be LOTS of people who took out mortgages 3/4 years ago linked to LIBOR. Most sub-prime lenders used to use this rate, rather than the Bank of England Base Rate.

It will be interesting over the coming months.

 

[Vegas Seagull]

As the acronym states it's the inter bank rate not a bank/customer rate & not relevant to household mortgages which are linked to the individual banks base rate

 

[El Presidente]

Paradoxically, Barclays UNDERSTATED LIBOR and so contributed to lower interest rates on the market when they were trying to convince the markets they were a low risk financial institution.

 

[Crispy Ambulance]

As the acronym states it's the inter bank rate not a bank/customer rate & not relevant to household mortgages which are linked to the individual banks base rate

Ok, thanks. But why did Halifax (amongst others) increase their customers' monthly mortgage payments on 1st May? Could have sworn they cited increased borrowing costs for them as their rationale for so doing? Would Libor not have had any impact in these increased borrowing costs?

 

[Hiney]

As the acronym states it's the inter bank rate not a bank/customer rate & not relevant to household mortgages which are linked to the individual banks base rate

Incorrect.

High Street lenders will link to Bank of England Base Rate but sub-prime lenders usually link to LIBOR

 

[Hiney]

Ok, thanks. But why did Halifax (amongst others) increase their customers' monthly mortgage payments on 1st May? Could have sworn they cited increased borrowing costs for them as their rationale for so doing? Would Libor not have had any impact in these increased borrowing costs?

Halifax increased their own Standard Variable Rate. Anyone with a mortgage at this rate (or linked to it) would have seen an increase.

 

[Tricky Dicky]

As the acronym states it's the inter bank rate not a bank/customer rate & not relevant to household mortgages which are linked to the individual banks base rate

Surely a banks lending rates are based on the rate that they themselves can borrow at, i.e. possibly LIBOR.

As El P says, customers may have benefitted from it.

 

[Crispy Ambulance]

Halifax increased their own Standard Variable Rate. Anyone with a mortgage at this rate (or linked to it) would have seen an increase.

Thanks (again!). But, as BoE base rate has remained unchanged for over 2 years at 0.5%, how could they have justified raising their SVR if it was linked to the BoE rate? Could have sworn they cited increased borrowing costs for their reasons. Bottom line - would Libor have had any involvement in the change Halifax made?

 

[Hiney]

Thanks (again!). But, as BoE base rate has remained unchanged for over 2 years at 0.5%, how could they have justified raising their SVR if it was linked to the BoE rate? Could have sworn they cited increased borrowing costs for their reasons. Bottom line - would Libor have had any involvement in the change Halifax made?

The lenders' SVR isn't technically linked to anything. It's their 'Standard' rate that they can (in theory) set at any level they like. In practice though, it would probably be linked in some way to LIBOR. LIBOR does fluctuate much more than Bankl of England Base Rate, reflecting movements in the markets in a similar way to how stocks and shares change price.

It made no sense for Halifax to change their SVR, given that they are a MAJOR lender and one of the High Street giants, but who knows what goes on in the corridors of power......................

As I said earlier, this will run and run - it's the City equivalent of the Vicente saga

 

[Crispy Ambulance]

PMSL! Gonna struggle to get to 2 pages, let alone 62!

So, in your opinion, potential for mass litigation, settlements, etc?

 

[Mr C Gull]

Thanks (again!). But, as BoE base rate has remained unchanged for over 2 years at 0.5%, how could they have justified raising their SVR if it was linked to the BoE rate? Could have sworn they cited increased borrowing costs for their reasons. Bottom line - would Libor have had any involvement in the change Halifax made?

I think you are missing the point. The bank(s) may have been manipulating LIBOR submissions but their treasury are well aware of the actual rate they could borrow at in the market.

We are also talking about the manipulated margins being predominately downwards and also measured in basis points rather than percentage points.

In short the impacts to retail customers are being sensationalised somewhat, the rate is predominately used to price Swaps and other interbank contracts (The trillions worth of contracts that are being thrown around in the media)

 

[Rugrat]

Reality is only a small proportion of mortgages are directly linked to LIBOR and I'm not even sure how successful Barclays were in manipulating it only that they were found to be trying. It's more of a Bank to Bank rate and used more for trading and commercial purposes and any (falsified) change would have been minuscule in rate but highly significant when the trillions involved are taken into account.

As for a lenders SVR that's pretty well anything they can get away with and increasingly seems to have no link to any other rate, just a number designed to get the best possible maximum return and takes advantage of the tightening in the credit market even though the BoE are making funds available (QE). They will argue it isn't but imo definitely inflated to recover previous losses, boost profits and pay bonuses!!

 

[ditchy]

I think you are missing the point. The bank(s) may have been manipulating LIBOR submissions but their treasury are well aware of the actual rate they could borrow at in the market.

We are also talking about the manipulated margins being predominately downwards and also measured in basis points rather than percentage points.

In short the impacts to retail customers are being sensationalised somewhat, the rate is predominately used to price Swaps and other interbank contracts (The trillions worth of contracts that are being thrown around in the media)

This is correct .
Mortgages are affected by libor rates which are the rates at which banks can borrow off each other at any givin time . The rate of your mortgage is then decided by how much money they can borrow at that rate . Therefore say nationwide manage to borrow £500 million at say 3% for 3months . They will then offer this out in mortgages at various rates and maturities from 2 years out to say 10years . . they will build a margin in that pool of money and lend it out to customers . . They will then keep on reborrowing that money every 3 months in the market and lend to the customer. If they have offered fixed mortgages and that rate starts to go up rapidly , then their margin is squeezed. if that rate goes down they gain ., as they cannot change the rate on a fixed mortgage. Obviously , if they lend to you on a variable mortgage they can change the rate whenever the terms allow

 

[beorhthelm]

In short the impacts to retail customers are being sensationalised somewhat, the rate is predominately used to price Swaps and other interbank contracts (The trillions worth of contracts that are being thrown around in the media)

they've been massivly sensationalised, as El pres points out the current Barclays issue was to lower the rate reported (which may not have enve changed the LIBOR rate as its an average), and the market effected is the niche lenders/borrows that lead us into this whole problem in the first place. Buy to let and £1m+ are the main mortgages effected.

still its a nice distraction from Leverson isnt it.