Eurozone worries may hit mortgage rates

The eurozone crisis has entered a dangerous new phase, which could see Britain's mortgage borrowers hit. The latest three month inter-bank lending rate - known as 'Libor,' the rate at which banks lend to each other - has smashed through the 1% ceiling. This rate is now 1.004%, up from 0.998% yesterday. The highest level since 2009. Could this raise affect you?


Quite possibly if you're attempting to get a mortgage for the first time, or even renew an existing one. Variable and tracker mortgages are especially vulnerable; the Libor rate is regularly used to price such mortgage deals. The Libor rate has been steadily rising since September 2009 when it hit a 0.54% low-point.

Normally the Libor rate sticks around 0.15-0.2% above the Bank of England base rate. But given it has now pushed higher than 0.5%, that's an alarming spread. This rate though is not yet higher than the record levels Libor hit during the autumn of 2008 when the financial crisis really took hold.

Most of us will pay

Why is it happening? Banks are having to take a hit on Greek debt - and increasingly will have to take blows from the Italian contagion too - so it means credit is tightened as banks struggle to pay the higher rate at which they're able to borrow. Especially if they're judged higher risk themselves from other lenders.

Banks are also increasingly having to factor in higher regulation costs, given the amount of reforming zeal there is around. All this costs.

The situation isn't completely out of control, but it's the momentum and the speed of direction that's concerning. Time to get your yourself a nice long five-year fix? Possibly. But some caution is still needed. The Libor rate is still a three month rate. Things can still change.

But if you prize stability in your life, especially with your outgoings, then it may pay you to re-think, and quickly.
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