Shift in Libor bodes well for UK mortgage market
Some relief for mortgage interest rates could be in sight following the rescue packages for banks announced by Governments in Europe and the US, earlier this week.
Libor, the rate at which banks lend to one another, has eased back slightly and three month Libor, a rate crucial to the UK mortgage market, has fallen to 6.21%, down from 6.249% on Tuesday.
The shift may seem too small to be significant but it indicates that bank’s are warming up to the idea of lending to one another again.
The majority of UK mortgage lenders borrow from the money markets to fund their business.
Throughout the credit crisis banks have been wary of lending to one another and the collapse in mid-September of Wall Street investment bank, Lehman Brothers, so heightened these fears that finally Governments were forced to take unprecedented steps to restore confidence in the wholesale money markets.
Banks across Europe and the US are being partly nationalised and central banks are providing guarantees for their debt, whilst at the same time flooding the markets with cash, in efforts to increase interbank lending.
While three month Libor still remains well above the Bank of England’s 4.5% base rate, the signs are promising because it is only as this gap begins to close that the UK mortgage market can begin its recovery.
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