Skipton Building Society is offering a second issue of the stateside mortgage, which tracks the three-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. Skipton chose this, rather than the Bank of England base rate because the US Libor is lower. It currently stands at 1.99 per cent, compared to the Bank of England base rate of 4 per cent.
The mortgage is available for loans of up to 95 per cent of valuation and remains at 1.55 per cent above the US Libor for five years. This gives a current payable rate of 3.54 per cent. Borrowers who redeem the mortgage during the tracker period pay an early redemption penalty of 5 per cent of the mortgage balance. But capital repayments of up to 10 per cent a year are allowed without penalty and there is no compulsory insurance.
In July 2001, Skipton pioneered this type of tracker mortgage with its Manhatton mortgage, which was withdrawn after two months because it was so popular. The first tranche of the stateside mortgage was also withdrawn within a month because the level of enquiries Skipton received looked set to exceed the £10m it had secured for the product.
Tracking the Libor rate is an innovative concept, but this mortgage is likely to appeal mainly to sophisticated borrowers. Some borrowers may feel nervous about having their mortgage rate being influenced by the US, especially if the terrorist attacks are still on their minds.