Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.)

Posted by markharrison on November 29, 2007

Bob Preston, in most recent his comments about the Northern Rock crisis, has noted that:

“Well three-month sterling Libor has been climbing for the past fortnight and is back at almost 6.6 per cent – well above the Bank of England’s policy rate of 5.75 per cent. It means that funds for banks are both expensive and are still relatively difficult to obtain.”

Libor (the London Inter-Bank Ordinary Rate), is the rate at which “mainstream banks” can borrow from each other. As I said in my article about securitisation:

“lenders tried to get customers to accept mortgages tied to LIBOR, so if the rate THEY had to pay went up, customers would pay them more.”

That’s to say, the bank would loan me money at “LIBOR plus 1%”, and borrow money at “LIBOR” – so make 1% profit each year (which, on a B2L mortgage, is easily enough to cover the admin costs and make a nice earner for them, particularly given they’re not tying up their own cash to do so.)

The problem, though, is that LIBOR is a “market rate” – that’s to say, a rate set by the place where “how low a rate banks with money are prepared to lend it for” and “how high a rate banks who need money are prepared to pay.” As with any market rate, it goes up and down.

The Bank of England Base Rate, on the other hand, is a rate set by public servants, specifically the Monetary Policy Committee of the BoE. It changes, at most, once a month.

When LIBOR moves much above the base rate, it doesn’t just affect mortgages tied to LIBOR – it suggests that the banks’ analysts believe that the BoE base rate is too low.

If the MPC agree with those analysts, then expect more rises.

14 Responses to “LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.)”

  1. […] of the scarey statistics – the so-called “BaseRate to LIBOR spread” (see my report at the end of November) has actually got rather better in the last six […]

  2. […] we will see yet more rate cuts, then (since, by rights, it ought to be higher – I think. What do I know about finance, anyway?). […]

  3. seo said

    seo…

    […]LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.) « Negotiation, Negotiation, Negotiation[…]…

  4. dress for work…

    […]LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.) « Negotiation, Negotiation, Negotiation[…]…

  5. Email Marketing…

    […]LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.) « Negotiation, Negotiation, Negotiation[…]…

  6. Sexy Fancy Dress…

    […]LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.) « Negotiation, Negotiation, Negotiation[…]…

  7. I’ve been surfing on-line more than three hours lately, but I by no means discovered any interesting article like yours. It’s lovely value sufficient for me.
    Personally, if all webmasters and bloggers made excellent content
    material as you probably did, the web will be
    much more useful than ever before.

  8. Hello there! Do you know if they make any plugins to
    help with

    Search Engine Optimization? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing
    very good

    results. If you know of any please share. Many thanks!

  9. Woah! I’m really digging the template/theme of this blog. It’s
    simple, yet effective. A lot of times it’s very hard to get that “perfect balance” between user friendliness and visual appeal. I must say you’ve
    done a fantastic job with this. In addition, the blog loads extremely fast for
    me on Opera. Excellent Blog!

  10. The following time I learn a weblog, I hope that it doesnt
    disappoint me as much as this one. I mean, I do know it
    was my option to learn, but I

    actually thought youd have something attention-grabbing to say.
    All I

    hear is a bunch of whining about one thing that you can fix should you werent too
    busy looking for attention.

  11. I will right away snatch your rss as I can not
    find your e-mail subscription hyperlink or newsletter service.

    Do

    you’ve any? Kindly let me understand so that I may subscribe. Thanks.

  12. When some one searches for his necessary thing, thus he/she desires to
    be available that in detail, therefore that thing is maintained over here.

  13. symptoms of low ferritin

    LIBOR rates well above BoE base rates… (What that means, and why it’s not good news.) « Negotiation, Negotiation, Negotiation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: