The cost of inter-bank lending has decreased markedly in reaction to the Bank of England's base rate cut, falling by over 1% today.
The rate at which banks lend to each other, known as Libor, is crucial in determining the cost of mortgages for customers, and the fall may result in cheaper borrowing.
Three-month Libor, the main rate which determines tracker mortgage costs, has fallen by over 1% from 5.56% to 4.49% today. The rate for overnight funds fell 0.78% to 3.21%.
The news will bring some cheer to homeowners as previous reductions in base rate have had little impact on borrowing costs as banks became nervous about lending to each other.
Yesterday, the Council of Mortgage Lenders said Libor was more important in determining the cost of mortgages than the Bank of England’s rate and said lenders would wait to see how inter-bank rates changed before deciding on how they would proceed.
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