Loan Rates Continue to Rise Alongside Libor

Tue, 20 May 2008

The Bank of England’s announcement regarding inflation saw interest rates on mortgages rise significantly on two consecutive days this week. The Bank of England stated their belief that inflation would rise by more than had been expected dashing any hopes of a further base rate cut. Of equal significance was the Libor increase, which stood at 5.84 on Thursday following a total increase of 0.08 percentage points on Wednesday and Thursday.

The three month sterling Libor, often used by lenders as a guide to the pricing of loans, had been improving in recent weeks as banks began to display a sense of faith following the Bank of England’s £50 billion liquidity injection, though that figure looks set to rise given the eager response of Britain’s banks.

Interest rates on loans and mortgages have been increasing relentlessly in recent months, with Moneyfacts claiming that the average rate for a two year loan is now at its highest point since 2000 – 6.64 per cent. Despite the recent base rate cuts from the Bank of England, 53 per cent of lenders have failed to cut loan costs or to pass on the benefit of the cut to borrowers on standard variable rates .
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