As of 1st December 2015, funds in our Tracker Rate product were switched to see returns set at 3.00% above LIBOR, rather than the Bank of England Base Rate. In response to this change, we’ve compiled a list of frequently asked questions about LIBOR below.
1. What is LIBOR (London Interbank Offered Rate)?
LIBOR is a global benchmark interest rate which is used to set the borrowing rate between banks. Calculated daily, the leading banks in London submit rates in multiple currencies and across different lending periods. LIBOR is an average of all rates submitted.
2. What does this mean if I have invested in the Tracker Rate?
All lenders with investments in the Tracker Rate product will earn interest of 3.00% + LIBOR as of 1st December 2015 and will receive their first interest payment at the new rate on 4th January 2016. Since lenders who invested prior to 21st December will have been invested in BBR Tracker Rate loans, Landbay will settle the difference between the LIBOR and BBR with its own funds. Should LIBOR fall below the Bank of England Base Rate, lenders with Tracker Rate investments made prior to 21st December 2015, will be eligible to a bonus payment from Landbay to settle the difference between the two rates on a monthly basis. In short, these lenders will always receive the higher of the two interest rates on funds invested prior to the 21st December 2015.
3. How will the new Tracker Rate be calculated?
We use a 3 Month LIBOR rate that can be found via Thompson Reuters. We will reset LIBOR on a quarterly basis and use the rate on or around the 15th of the month before the quarter starts. We will calculate to two decimal places and always round up. Therefore, for example, the rate for January‐to‐March 2016 is determined by the LIBOR rate on or around 15th December 2015. The rate for April‐to‐June 2016 is determined by the LIBOR rate on or around 15th March 2016, and so on.
4. Why have we changed to LIBOR?
Libor is the benchmark for most mortgages ‒ most banks and lenders use it and it is the market rate for institutional lending. As Landbay grows we are increasingly presented with interest from institutional investors who are looking to invest via our platform alongside our retail customers. New institutional interest in Landbay is strong vindication of our prudent underwriting standards (and a fully‐performing loan book that has seen no late payments since we started lending in 2014). This is positive for our retail customers as increased investment flows will increase diversification and liquidity on the platform.
We believe that LIBOR better prices liquidity in the market. In 2007, as we entered the credit crisis, Bank Base Rate fell sharply but LIBOR increased significantly; representing the illiquidity in the market. At this time, investments tracking BBR would have seen their interest payments fall whilst investments tracking LIBOR would have seen their interest payments rise. A rate that better prices liquidity can improve secondary market liquidity which subsequently facilitates investors’ ability to withdraw their investments before an investment’s term. We see this shift as a natural evolution in peer‐to‐peer lending and we are proud to be leading the way, as we did in setting industry standards in transparency and independent stress testing.
5. What does this mean if I have invested in the Fixed Rate?
Lenders who have invested in the Fixed Rate product will not see any changes to their current investment. After the three year fixed period, funds will switch automatically to the Tracker product and therefore changes to their rates will be as described above.