Goochie

As per the subject, does anyone here have a mortgage that is based around the Libor rate?

The reduced % over the BoE rate makes them seem very attractive, but there are some setup costs involved. However I'm hoping someone ahas first hand experience of one?

Also, if you're a mortgage broker/Mortgage IFA please drop me a PM

Cheers - Phil.

TelBoy

What exactly did you need to know, Phil?

Goochie

Well, a former colleague swapped from his Abbey mortgage to a Libor based one a couple of years ago and has significantly reduced his monthly payments as a result (significant = £300).

I have a number of queries though:

1) The Libor rate does tend to fluctuate quite frequently and you can get mortgages that change rate every 3/6/12 months. ideally I'd like a 2-5yr fixed rate but is this possible?

2) Do companies offering these use the same lending criteria (salary multiples etc) or are they a bit more specialised? For examle, if you're income shows you can afford £700 a month could you borrow more with a Libor based mortgage because the monthly payments would be different?

3) What is the snag? Surely if they reduce the cost of your mortgage and there were no pitfalls everyone would have one?

fast bloke

Libor (London interbank offered rate) rates are the rates that banks use to borrow money from each other. Most of the companies that offer LIBOR rates are sub prime companies (they lend to people with bad credit histories) They would usually change every month or every three months. The best deals are generally available from prime lenders (clean credit history)
AT the minute the lowest LIBOR based mortgage with no redemption overhang is 5.37% with Advantage home loans. This has no incentives for remortgage (you have to pay solicitors, valuations and arrangement fees.) In comparison the best fixed rate is 0.001% with Yorkshire BS (fixed for 6 months and then steps to 5.69 for 5 years) or for a normal mainstream mortgage, around 4.79% with free legal work and no valuation/arrangement fees.

What company is your colleague with?

Goochie

I dont know who he is with and cant ask him as I've since moved employer It was tha ability to borrow the same but pay less that attracts me.

However, if most of the companies offering these are "sub prime lenders" I assume their rates are higher, hence, the rate you pay isnt actually that much lower? (if you see what I mean)

It isnt' for a re-mortgage.

fast bloke

The rates are usually a bit higher than for mainstream discounted or fixed deals. Some have low initial rates, but with extended redemption periods, so they get the money off you in the end. We (brokers) tend to get paid about 3 times as much by the lenders for arranging LIBOR mortgages, which is a good indication that they are not really cheap

Goochie

fast bloke - you have a PM