All the latest money market information can be found here, including up-to-date SWAP rates and LIBOR rates. We'll also have commentary and views from our in-house experts.
Rates as at 20th August 2015
(SWAP rates provided by the Bank of Ireland. rounded to two decimal places.)
The following graph gives an indication of how the 3 Month LIBOR Rate has compared to Bank Base Rate over the past 12 months.
Historic SWAP Rates
The following graph gives an indication of how the Swap Rates have moved over the past 12 months.
What is Bank Rate?
Bank Rate is the interest rate at which the Bank of England is prepared to lend short-term money to financial institutions. Also referred to as Bank Base Rate, it directly affects short and longer-term interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers.
Bank Rate is set each month by the Bank of England's Monetary Policy Committee and the monthly decision is announced at 12 noon immediately following the meeting. Decisions are made on a one-person-one-vote basis, with the Governor having the casting vote if there is no majority.
By changing the rate of interest, the MPC is attempting to influence the overall level of activity in the UK economy and keep a healthy balance between supply and demand.
Reductions in Bank Rate usually occur when the demand for goods and services falls to such a level that unemployment rises and businesses start to close. Increases in Bank Rate usually occur when the demand for goods and services rises at a faster pace than can be supplied by the economy.
Unusually, Bank Rate has been set at 0.5% since March 2009.
What are SWAP Rates?
SWAP rates are a mechanism through which lenders can acquire a fixed price for funding over a specific period of time, normally from 1 year to 10 years – although most commonly 2, 3, 5 and 10 year SWAP rate programmes are used as these are then used to create fixed rate mortgage products for homeowners, property investors and business mortgages.
SWAP rates will factor in what the money markets see
as the likely average rate over the chosen time period and can sometimes be cheaper than the prevailing variable rate and therefore result in a product (by the time the lender has added a margin) that is not only attractive but also provides the borrower with certainty of mortgage costs over the chosen period.
Some lenders will have sophisticated SWAP rate money management programmes and will be in a position to run a rolling fixed rate programme – i.e. offering a fix from the day of completion whereas some will work to a fixed end date such as fixed to 31 Aug 2014 which is more transparent to monitor.
As with any market. traders will occasionally “make the wrong call” and fixed rates based on unknown future events, can look dramatically attractive – simply the price appears “too good to be true”. If this happens, we recommend you check out the fees and any early redemption charges (ERCs) and if it still works, grab it before it goes.
What is LIBOR?
LIBOR stands for London InterBank Offered Rate and is the rate of interest that banks charge to lend money to each other. Each bank operating in the London market reports its own LIBOR for its cost of borrowing on the London market, and the rates reported by the larger banks are correlated by Ice Benchmark Administration (IBA)* on a daily basis to determine an overall market rate for LIBOR.
The wholesale markets allow banks which need money to be more fluid in the marketplace to borrow from those with surplus amounts. The banks with surplus amounts of money are keen to lend so that they can generate interest on the loans which they would not otherwise receive.
Historically LIBOR has run at between 0.15% and 0.25% in advance of where the markets believe Bank Rate will be in 3 months' time. This premium has fluctuated considerably in the period since the financial crash in 2008 but is currently around 0.06%.
* On 1st February 2014 Ice Benchmark Administration (IBA) assumed responsibility as the new administrator for LIBOR from the British Banker's Association (BBA). ICE works with a small group of large banks to set LIBOR on a daily basis.Source: www.mortgagesforbusiness.co.uk