Libor rigging could have affected few mortgages, says Shapps

Wednesday 18th July 2012

Housing minister Grant Shapps has told the House of Commons that only a handful of homes will have been repossessed as a result of the Libor rigging scandal.

But, he said, there could have been some impact on the pricing of mortgages.

He was replying to a question from Leeds MP Hilary Benn, who asked him to assess the contribution of manipulation of Libor on the level of repossessions and homelessness.

Shapps replied: “Only a very small minority of mortgages, primarily sub-prime and buy-to-let from specialist lenders, are directly linked to Libor.

“Most of these were lent before the banking crisis. Very few (if any) of the large banks/building societies provide mortgage products which have a direct link to Libor. Therefore only a small minority of mortgages will have been directly affected by the attempted manipulation.

“It may be possible that there was some indirect impact on the pricing of mortgages.

“This is due to the links between Libor and the cost of wholesale funding. However, wholesale funding makes up only a part of the funding mix used by banks to lend to the real economy, and the cost of funding is one of a number of factors used by banks when considering how to price their mortgages. Therefore while the attempted manipulation may have had some indirect effects, these are likely to have been small.

“It is also important to remember that where the aim was to attempt to manipulate Libor downwards, the effect may have been positive, as it would have reduced the costs of bank funding.”

He added that an independent review into Libor, headed by Martin Wheatley of the FSA, will report at the end of the summer.

Yesterday, at the Treasury Select Committee hearing, Bank of England governor Sir Mervyn King said he only learned of fraud in interbank lending rates two weeks ago – despite evidence of warnings from the US authorities back in 2008.