29 Apr 2021 | Tax and Finance

Are you ready for the end of LIBOR in the sterling market? UK Finance guest blog

In 2017 public authorities globally announced that LIBOR, the most common interest rate benchmark in the UK, was no longer sustainable and the market should move to robust alternative rates by the end of 2021. Since then, Brexit and the pandemic have understandably taken priority, but with only 8 months to go businesses in the real estate industry should be asking themselves, am I ready for the end of LIBOR in the sterling market?

LIBOR (the London Interbank Offered Rate) is a series of benchmark reference rates used for calculating interest rates for financial products. As the use of LIBOR is so widespread: found in loans, leasing and servicing contracts, commercial contracts and discount rates to name a few, this will impact a significant number of businesses.

One important transition milestone, that could signal a big change in how some businesses receive funding, has already been met. Since 1 April this year, lenders have no longer been able to offer new loans linked to sterling LIBOR, instead any new borrowing is being offered with alternatives rates such as fixed rate or Bank of England Base Rate, or for segments of the sterling market such as larger corporate borrowing, the recommended replacement is SONIA (Sterling Overnight Index Average).

The next major milestone is the conversion of all existing LIBOR linked sterling contracts to alternatives rates by the end of September, in preparation for the end of year LIBOR cut off. Whilst banks have been working towards this for some time, it will require engagement from all market participants, and lenders from now will be increasingly reaching out to their impacted customers to discuss what this means for their contract, if they haven’t already.


  1. Engage proactively with your lender. The way lenders will approach moving a contract away from LIBOR will vary depending on borrower type and the contract in question, and will involve private discussions between lender and client, but in all scenarios businesses have been strongly encouraged to engage with their financial providers to agree when and how the change will occur.

  2. Be prepared. To help make these conversations easier, there are a number of actions borrowers can take:
  • Familiarise yourself with your LIBOR exposure
  • Review the difference between LIBOR and replacement rates, particularly regarding how these differences may impact when / how you pay interest and any resulting operational and system implications for both new and existing borrowing
  • Plan how you will transition
  • Speak to your bank, lender or financial advisor


  1. Look at the bigger picture. Whilst identifying where you have exposure, businesses should be mindful to not only identify their exposures but consider how these interconnect. For example, where you may be hedging a loan through an associated derivative, you should assess the extent consistency is needed for both the rate selected, and the timing of transition for both products. Though it is worth checking your financial facilities first as the most likely place LIBOR will be found, LIBOR may be present in other less obvious areas such as intra-group accounts and commercial contracts such as in late payment clauses.

  2. Remember that LIBOR transition is a global change. LIBOR is used (and is transitioning) in other currencies e.g. in US Dollars, and you could have borrowing linked to another currency through a multi-currency facility for example. Timelines and paces are varying across the globe, which amplifies the challenge for users of multiple currencies. Whilst sterling is leading the charge in most areas of transition, consideration needs to be given to the expectations for progress and diverging timelines internationally.

If you’re not yet familiar with LIBOR transition this may all seem like there is a fairly big mountain to climb in the next 8 months. However, the most effective next step is just to review where you have exposure LIBOR and then start to engage with your lender on what transition will look like for you.

Information on the different rates, videos on the credit spread adjustment and help on how to transition have been provided by the Sterling Risk Free Rate Working Group, a diverse group of market participants and trade associations set up to support a smooth transition in the UK.

For a more information on  the move away from LIBOR, please see UK Finance and CBI’s guide for business customers on the discontinuation and the Association for Corporate Treasurers practical guide on LIBOR transition.

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Daniel Cichocki Director, LIBOR Transition; Commercial Finance, UK Finance