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LIBOR replacement

Mortgages that were linked to LIBOR have moved to a new reference rate

This page provides further information to help you understand the change to Term SONIA.​

Watch our video from the beginning of the LIBOR changes in 2021 to hear directly from Richard Rowntree, Managing Director of Mortgages, about Term SONIA.

About your new rate

We chose Term SONIA as your new reference rate. This means all mortgages you hold with us previously linked to LIBOR are now linked to Term SONIA.

Term SONIA is based on the SONIA overnight reference rate, which is administered and published by the Bank of England and was selected as the preferred alternative to LIBOR by an industry-wide working group. It is independently calculated and rooted in real-life transactions between financial institutions.

Read more about Term SONIA and why we chose it

Why your rate needs to change

UK financial regulators instructed lenders to move LIBOR-linked mortgage customers to an alternative reference rate where possible, as LIBOR was no longer seen as a sufficiently robust or sustainable rate.

An alternative rate called ‘Synthetic LIBOR’ was created as a temporary solution for certain accounts that could not be transitioned by the end of 2021. However, this was not applicable for Paragon Mortgages. The way Synthetic LIBOR is calculated means that it will always be higher than Term Sonia.

Our Historical Rates Chart shows Synthetic LIBOR has been above Term SONIA since December 2021 and this will remain the case.​

Why is Term SONIA increasing at a different rate to the Bank Base Rate?

The financial markets calculate Term SONIA rates based on expectations for interest rates over the coming months. Currently, the Bank of England is expected to raise rates over the coming months, so Term SONIA is higher than Bank Base Rate. Conversely, when the Bank of England is expected to lower rates, Term SONIA would be lower than Bank Base Rate.

What this means to you

The rate you will now pay is based on:

  • Term SONIA
  • The product margin set when you took out your mortgage with us

You do not need to take any action - we have automatically applied the new rate to your previously LIBOR-linked account(s).

You can log in to the Paragon Customer Portal to view which accounts are now based on the Term SONIA reference rate

Supporting FAQs

What is Term SONIA and why have we chosen it?

Term SONIA is based on the SONIA overnight reference rate. SONIA stands for Sterling Overnight Indexed Average and is the average rate at which banks will lend to one another overnight. SONIA is administered and published by the Bank of England and selected as the preferred alternative to LIBOR by an industry-wide working group.

Term SONIA replicates the relevant forward-looking periods that exist for LIBOR, for example three-month LIBOR. Like LIBOR, Term SONIA is set at the start of your interest period, meaning you have certainty of payment. For example, three-month Term SONIA will be fixed for the three-month interest period after which it is set. We believe Term SONIA is the most reliable long-term solution for you because:

  • It is based on SONIA, which is rooted in real-life transactions and well established, having been used since 1997​
  • The rate is independently calculated
Why was LIBOR phased out?

UK financial regulators announced the end of LIBOR in its current form after 31 December 2021 and lenders were required to move LIBOR-linked mortgage customers where possible to a suitable alternative reference rate.

Was the phasing out of LIBOR a Paragon decision?

No, this wasn’t our decision and we, along with the rest of the market, have followed guidance from global regulators.

Could I have chosen to stay on my LIBOR-linked product?

No. LIBOR as a reference rate does not exist in its current form after the end of 2021, so it has been necessary to move to a replacement.

An alternative rate called ‘Synthetic LIBOR’ was created as a temporary solution for certain accounts that could not be transitioned by the end of 2021. However, this was not applicable for Paragon Mortgages. The way Synthetic LIBOR is currently calculated means that it will always be higher than Term Sonia.

What will my new monthly payments be and when will they change?

As your mortgage is variable, your monthly payments will vary dependent on changes to the reference rate. They will continue to reset as before.

Can you give me an indication of the likely payment amount now?

Yes, you can log in to the Paragon Customer Portal and view all your Term SONIA-linked accounts.

Did Paragon act in line with other lenders/following guidance from the regulator?

Yes, where possible all lenders have had to move customers from LIBOR to an alternative reference rate. However, not all lenders may have selected the same replacement rate as contract terms may vary.

How was Paragon allowed to change the terms of my mortgage mid-contract?​

The terms and conditions that apply to your mortgage contain a clause that, in the event that we cannot determine LIBOR as set out in your terms, allows us to set LIBOR at whatever reference rate we may reasonably consider appropriate in light of the market circumstances then prevailing.

The terms and conditions that apply to your mortgage may also contain a clause which allows us to vary the reference rate of your mortgage in certain circumstances, such as to allow us to administer the mortgage more efficiently, to reflect market conditions or to take account of a decision by a regulator. As such, we wrote to you last year to notify you of a variation to the terms of your contract.

Have there been any fees for this transaction?

There have been no fees for moving your account to the new Term SONIA rate.

How is Paragon ensuring Term SONIA is not open to manipulation and is fair to customers?

Term SONIA is an independently calculated rate and based on the SONIA reference rate, which is rooted in actual transactions between banks.

SONIA is administered and published by the Bank of England and selected as the preferred alternative to LIBOR by an industry-wide working group

Will there be any fees for changing to a new product?

There may be fees to pay if you switch to an alternative product with Paragon, or with another lender.

Where can I find more information about what’s happening in the industry?

UK Finance

UK Finance is the collective voice for the banking and finance industry and represents more than 250 firms across the sector.

They have produced some FAQs to support customers through the LIBOR transition.

Financial Conduct Authority

The Financial Conduct Authority (FCA) is the conduct regulator for nearly 60,000 financial services firms and financial markets in the UK.​

The FCA have produced some information for borrowers, supporting them through the LIBOR transition.​​

Bank of England

The Bank of England (BOE) have issued an announcement about the end of LIBOR.

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