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Skipton breaks new ground

Skipton Building Society is breaking new ground with a flexible mortgage that tracks the 3-month US dollar London Inter Bank Offered Rate (LIBOR).

The US dollar Libor is the rate at which UK banks lend US dollars to other UK banks and is set by the British Bankers Association.

The Manhattan mortgage is available for loans of up to 95 per cent of valuation and remains at 1.14 per cent above the US dollar Libor rate for the first five years.

As the 3-month US dollar Libor is currently 3.90 per cent, this gives the mortgage a payable rate of 5.04 per cent.

Borrowers who redeem in the first five years must pay an early redemption penalty of 5 per cent of the outstanding loan. They can overpay by up to 10 per cent a year without penalty, take payment holidays providing they have made overpayments and interest is calculated on a daily basis.

According to Moneyfacts on July 9. 2001, this is the only mortgage of this type. There has never been a UK mortgage linked to the US dollar Libor rate so the Manhattan mortgage is an interesting concept. However, the key issue for borrowers is whether they think this rate is likely to remain lower than mortgages which track the Bank of England base rate.

The limited flexibility the Manhattan mortgage provides may be just enough for the average borrower, but the redemption penalties for the first five years may be a drawback.

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