The Bank of England publishes statistics on interest rates offered to households by banks and building societies – ‘quoted rates’ – for a range of lending and deposit products.
From today (7 March 2019) a number of changes to these statistics are being introduced. This article provides a summary of the changes made, and explains the impact of these changes on the data.
Changes to the Quoted Rates interest rates series
The changes being introduced to the Quoted Rates data this month are:
a) the addition of new series;
b) an expansion of the sample of banks and building societies from which quoted rates are calculated to cover the whole market;
c) an improvement to the approach to weighting different lender’s interest rates together to create a representative aggregate series;
d) the approach for selecting individual products from banks and building societies to compile the aggregate series;
e) a move to publishing the average quoted rate over the month, rather than value at the end of the month, consistent with the Bank’s Effective Rate statistics; and
f) a move to publishing quoted rates once a month on the 5th working day.
The specific methodological changes are discussed in detail in ‘Forthcoming changes to quoted interest rates data -2019’.
Additional series
A number of new products have been introduced for mortgages. For owner-occupier mortgages, the sample has been expanded to include a wider range of five-year fixed-rate mortgages, reflecting their increased popularity. For buy-to-let mortgages the sample has been expanded from one to four products. The new rate for the five-year fixed-rate 60% loan-to-value (LTV) owner-occupier mortgage was close to 2% in January 2019, around 0.25 percentage points higher than its two-year fixed-rate equivalent (Chart 1). The new buy-to-let products that have been introduced have higher interest rates than their owner occupier counterparts, particularly for products with a fixation of 5 years, where rates are more than 1 percentage point higher.
Additional series for credit cards that cater for specific market segments have also been introduced. The new ‘Credit Cards – Representative’ series shows the most competitive Annual percentage Rates (APRs) of credit cards that are available to a wide range of people. The interest rate is around 0.8 percentage points higher than the previously published credit card series. The new data also shows that credit cards with high 0% balance transfer or purchase periods had interest rates that were around 1 percentage point higher than the ‘Representative series’. Credit cards marketed as ‘Low rate’ had interest rates than were around 5-8 percentage points lower (Chart 2).
Impact of methodological changes on existing series
The interest rates on the majority of pre-existing products are little changed, despite some significant changes to the calculation approach. Differences between the new and old interest rates are caused by an expansion of the sample to include smaller lenders and deposit takers, changes in the way firms’ rates are weighted together required by this expansion, and changes in the selection criteria for products. Charts 3 and 4 show that the scale of these differences has been broadly similar over the months for which the two versions of the data have been calculated. The impact of each change on previously published series are shown in Annex 1.
The changes led to increases in 12 of the 26 quoted rates series (by up to 0.81 percentage points) and decreases in 13 (by up to 1.24 percentage points), with the interest rate on one product unchanged. The average absolute revision was 0.16 percentage points. Mortgage rates were on average unchanged, but for consumer credit products the average change in interest rate was -17 basis points. The largest change was to the interest rate for overdrafts, which is now 124 basis points lower, reflecting changes to the products selected from individual lenders for inclusion in the series. The largest increase was for the credit card series, which is 81 basis points higher, reflecting the exclusion of ‘low rate’ cards that had previously been incorporated in the series.
For mortgages, weighting changes had the largest impact. Mortgages are now weighted using Product Sales Data – an FCA loan level collection – so the lending flows used are based on the same products as rates are selected for. The expansion of the sample also had a significant impact, reflecting the incorporation of new banks with higher average interest rates than those previously captured.
For consumer credit, most of the impact to series came from changes in product selection. For example, the exclusion of ‘low rate’ cards from the ‘representative’ series shifted it up by 61 basis points.
The impacts of changes to deposit series were mixed. The largest shifts were to instant access accounts, which were shifted up 12 basis points due to a change in product selection, and the 2 year fixed-rate ISA which was shifted down by 22 basis points due to changes in weighting approach.
