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LIBOR Transition: What You Need to Know


The LIBOR reference rate is expected to be phased out by the end of the year. We explain all in our Q&A.

The LIBOR reference rate on which hundreds of thousands of mortgages are based is expected to be phased out by the end of 2021 due to concerns over its reliability, independence and transparency.  

UK financial regulators require mortgage lenders and other financial institutions to transition customers with LIBOR-linked contracts to an alternative reference rate by the end of the year. Read our LIBOR Q&A to find out more.  

What is LIBOR? 

LIBOR stands for London Interbank Offered Rate and is the rate at which major banks will lend to one another on an unsecured basis. Since the 1980s LIBOR has been used widely as an interest rate benchmark for many products, including mortgages. 

Why is LIBOR being phased out?  

The use of LIBOR has declined since the global financial crisis in 2008/09 and the lack of an active market has made the rate unstable and unreflective of true borrowing rates. LIBOR is not viewed by global regulators as a reference rate that is sufficiently reliable, transparent, independent or representative. Therefore, financial regulators globally have told lenders and financial institutions to find a suitable replacement. 

When will LIBOR be phased out? 

LIBOR is not expected to exist in its current form after the end of 2021.  

Who decided LIBOR should be phased out? 

This decision was made by global financial regulators. Paragon, along with other lenders and the rest of the financial services sector, is complying with guidance from global regulators and will be transitioning customers to an alternative reference rate. 

How does this impact those with a LIBOR-linked mortgage contract? 

Customers with a mortgage using LIBOR as a reference rate will be transitioned by their lender to an alternative reference rate, if their specific contract wording allows it.  

What is Paragon doing about this change?  

Paragon, along with the wider market, is assessing the potential alternatives to the LIBOR reference rate. We will ensure we will update customers to give them plenty of notice ahead of any change.  

Will everybody with a LIBOR-based mortgage transition to the same alternative rate? 

No. Each lender will make its own decision about what alternative rate it will transition customers to. Their key objective will be to ensure customers aren’t detrimentally impacted by any change.  

When will mortgage customers transition to a new reference rate? 

Each lender will work to its own timetable, but all lenders must transition customers before the end of the year.  

Where can I find out further information? 

You can find additional resources and information via the Bank of England, the Financial Conduct Authority or UK Finance

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551