A group representing U.K. mortgage providers said the scandal surrounding the Libor interbank offered rate won’t hurt homeowners.
“It’s very unlikely that Libor-fixing will have had any material impact at all on consumers,” said Sue Anderson, the head of member relations at the Council of Mortgage Lenders in London, whose 110 members include HSBC Holdings Plc and Barclays Plc. “If anything, a downward impact on Libor is going to be advantageous overall to the wider influence on rates and pricing of the mortgage.”
Only a “small proportion” of U.K. home loans such as buy-to-let and specialist mortgages tend to track Libor, said Anderson. New buy-to-let lending totalled 3.7 billion pounds ($5.8 billion) in the first quarter, a drop of 5 percent from the last three months of 2011, according to CML data.
Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London, with lenders asked how much it would cost them to borrow over various periods in different currencies. Banks are accused of massaging down submissions for the benchmark for $360 trillion of global securities during the financial crisis and artificially increasing them before it.
British Prime Minister David Cameron was cited this month in the Sun newspaper and the Scotsman as saying “it is outrageous, frankly, that homeowners may have paid higher mortgage rates and small businesses may have paid high interest rates because of spivvy and probably illegal activity in the City.” Trades tied to Libor “affect the mortgage payments and loan rates of millions of families,” Chancellor of the Exchequer George Osborne told lawmakers on June 28.
“Much of the mainstream media commentary has focused on the fact that by manipulating Libor the banks were hurting high-street borrowers as Libor determines the rate off which retail mortgages are being set,” Sean Keane, the managing director of financial advisory group Triple T Consulting in Auckland, New Zealand, said in a July 4 note to Credit Suisse Group AG clients.
“Aside from the fact that many mortgages have no relationship at all to the Libor fixing, these comments also ignore the fact that the banks were reportedly setting Libor too low, not too high,” he said. “If there was any manipulation going on, it was actually aiding not hurting.”
The benchmark three-month dollar Libor rate fell to 0.455 percent at the end of last week from as high as 5.725 percent in September 2007. At least a dozen banks are being investigated for manipulating the benchmark, prompting Barclays Chief Executive Officer Robert Diamond to quit this month after the U.K.’s second-biggest lender was fined a record $451 million.
“I know that my mortgage rate will not be affected by Libor,” said James Cain, 51, a London-based fund manager and Barclays customer. “The whole thing is a political witch-hunt.”