As the City calls for more heads to roll following the record fine imposed upon Barclays last week, we see sub-prime mortgages sold to thousands of borrowers come into question. Many borrowers are asking, how has this affected my LIBOR linked mortgage rate? This matter is complex and has yet to settle or become clear. Other lenders are now in the headlines as it becomes apparent that Barclays were not acting alone in their malpractices which have been subject to serious action being taken by the FSA and concerns expressed at the highest level within the Government.
Will sub-prime borrowers get compensation?
The complexity in the way in which LIBOR is calculated, and then set by individual lenders is such that it is almost impossible to calculate any loss to borrowers who may have paid a higher rate. Arguably, borrowers who are on a LIBOR linked loan have done well following the financial crisis as LIBOR rates tumbled and have remained low, albeit, that the Bank of England base rate is now lower than LIBOR and will continue to be so. It will be a while until the full impact of this issue is uncovered, if it ever will be. Borrowers who took out sub-prime loans are more likely to be victims of poor advice or irresponsible lending!
Who are going to be victims of this scandal?
These will include the shareholders of Barclays and those who have invested in pension funds which have suffered loss following the fall of Barclay’s share value and its profits. The on-going fallout from this action is huge and will probably take years to unfold. The complexity of how the City works and those who rely upon trust and ethical transparent working practices have been fundamentally undermined yet again. It is not just consumers who are victims. There are also the financial institutions that trusted the LIBOR rate set and purchased residential mortgage backed securities, (RMBS) from lenders. This was common in all specialist and sub-prime lending, and now many borrowers have not got a clue as to who they are now dealing with and who to seek advice from during such difficult times. Their mortgage has also moved home!
So what next for borrowers?
It is inevitable that there will be a cry for compensation for borrowers who may have been affected. There will be along queue behind those who have are able to demonstrate a loss! It is very unlikely that compensation will not be forthcoming; borrowers may be given false hope that their rate will change to compensate for this manipulation of such a key rate linked to mortgages, the owners of their mortgage now are likely to brush aside any claims, these cannot easily be calculated. The comfort for borrowers is that LIBOR is now low and the higher rates experienced in 2007 are not likely to return.