One-month sterling LIBOR rocketed from 6.1 to 6.74 last Monday and continued to rise throughout the week, fuelling further concerns about the state of the capital markets.
This high level is set to continue into the New Year, according to Iain Cornish, chairman of the Building Societies Association (BSA), and could have a major impact on pricing in both the prime and non-conforming sectors.
Speaking at the launch of the BSA’s ‘Stepping Up To The Mark’ report, Cornish said: “The current rate of LIBOR is not just down to the year end but because there is a huge amount of capital maturities coming to an end so these have to be renewed. We have already seen non-conforming lenders pull back from the market but we will see more prime lending withdrawn or priced up.”
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, believed that even an interest rate cut would not be able to rein in the price of three-month LIBOR, which has remained around the 6.65 per cent mark.
However, Peter Charles, economist at Bradford & Bingley, believed things were not as pessimistic.
“It is odd that the spike has been in one-month LIBOR, with three-month not moving. The Bank of England is aware of the liquidity problems and has promised £10 billion in the New Year. It has stated its objective of getting the money rates back towards Base Rate but that is difficult in the current circumstances. A rate cut in the New Year will help.”
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