The Legacy Reference Rate is used to determine the interest rate applicable to mortgages offered before 21st January 2020 upon expiration of the fixed interest rate period. This rate will be introduced as a replacement rate for LIBOR from 14th December 2021. For more information see ‘How is the Legacy Reference Rate calculated?’ below.

Your interest rate will change in accordance with the terms of your mortgage offer and applicable General Mortgage Conditions

You can access your General Mortgage Conditions which are available here.

LIBOR means the London Interbank Offer Rate. This is the rate of interest at which banks offer to lend money to one another on a short-term basis in the wholesale money markets in London. Each day a select panel of banks is required to submit the rate at which each could borrow funds from another. These submissions are compiled and used to calculate LIBOR.

When LIBOR changes, this may affect the rate at which a lender can borrow money, sometimes referred to as their ‘cost of funding’. LIBOR is therefore used by many lenders (including Pepper Money for some of our mortgages) as a reference for setting variable interest rates on mortgage loans and other financial products.

We currently use LIBOR as a reference rate for setting the interest rates for our mortgage products once any fixed interest rate period has ended. This means that the interest rates on our mortgage products vary in accordance with changes in LIBOR, on the terms set out in your mortgage offer and general mortgage conditions.

With effect from 1st January 2022, LIBOR will no longer be a valid reference rate for us to use when setting interest rates. For more information on the discontinuation of LIBOR, see https://www.fca.org.uk/consumers/mortgage-interest-rates-libor

From 14th December 2021, LIBOR will be replaced with the Legacy Reference Rate for all customers who were offered a mortgage with Pepper Money before 21st January 2020.

We have written to all customers who are affected by this change to explain how the Legacy Reference Rate will replace LIBOR and setting out the changes which will be made to your general mortgage conditions, effective from 14th December 2021. An amended version of the general mortgage conditions will be available to view and download from 14th November 2021 via www.pepper.money/tandcs. If you would like us to send you a paper copy of the amended general mortgage conditions, please contact us.

You will be able to view the latest Legacy Reference Rate from 14th December 2021.

If you have any queries about the Legacy Reference Rate, please contact us.

For customers who were offered a mortgage before 21st January 2020 only:

The Legacy Reference Rate is comprised of compounded SONIA over a period (SONIA is a reference rate administered by the Bank of England, meaning the Sterling Overnight Index Average) plus a “credit adjustment spread” (“CAS”). A CAS reduces the economic differences between LIBOR and SONIA, which result from, amongst other factors, the term credit risk premium that is built into LIBOR, but not into SONIA.  

The CAS will be set by us on 14th December 2021 (the date from which the Legacy Reference Rate will replace LIBOR) and will be the lower of: 

1. the average of the daily difference between compounded SONIA and LIBOR over the preceding 5 years; and 
2. the difference between compounded SONIA on 14th December 2021 and LIBOR on 14th December 2021.

This means that from 14th December 2021, and for the remainder of your mortgage, your interest rate is comprised of compounded SONIA and CAS (which, combined, are the Legacy Reference Rate), as well as any margin that was detailed in your mortgage offer. The CAS element of your interest rate will be set on 14th December 2021 and will not vary during the term of your mortgage. Similarly, the margin will remain as set out in our mortgage offer. The SONIA element (and thus your overall interest rate) will vary to reflect changes in SONIA on the terms of the updated general mortgage conditions. 

There are no other changes being made at this time.

Compounding SONIA is used as the floating index on our various externally provided funding structures. By moving to SONIA we are ensuring the reversionary rate of our products is being measured by the same index applied to our funding. This in turn reduces our interest rate risk and works to safeguard product pricing parity.

Our front book of assets is currently linked to compounding daily SONIA. By moving the back book of assets to the same underlying index we are maintaining consistency within the variable rate element of our product cohorts.