Explanatory Notes - Quoted household interest rates
OVERVIEW
AVAILABILITY
SOURCES
DEFINITIONS
REVISIONS
VALUATION AND BREAKS
FURTHER INFORMATION
The Bank calculates quoted rates by collecting the headline rates advertised by a sample of banks and building societies and weighting these by the monthly balances or new business amounts reported on other Bank of England returns to obtain a weighted average rate for a range of products offered to households.
The quoted rates series were changed in January 2008; the number of series published was reduced and the weights and sample were changed.
AVAILABILITY
Data are generally available monthly from January 1995. The data are not seasonally adjusted. Publication of provisional data occurs on the 7th working day of each month on the Interactive Database and final data on the 21st working day on the Interactive Database and in Bankstats table G1.3. Data released on the 21st working day include revisions to those published on the 7th working day. See the schedule of releases.
Rates are produced on the Wednesday prior to the monthly pre-MPC meeting. These rates are provisional: they are weighted using the previous month’s balances or new business amounts, as reported on other Bank of England forms; and they may not include all rate changes that occurred up to the end of the month. End month rates weighted on the relevant month’s balances or new business amounts are published on the 21st working day in Bankstats table G1.3.
Each series is derived from interest rates for relevant products available from a sample of the largest banks and building societies. The sample is based on that used for the Effective Interest Rates return, Form ER. Coverage varies between products and is based on data reported on core Bank returns. The sample covers around 80% of all banks and building societies gross mortgage advances to households as measured by monthly balance sheet returns to the Bank. Coverage of total credit card advances is around 90%, unsecured personal loan advances is around 75% and overdraft amounts outstanding approximately 80%. The sample accounts for around 75% of household sight and time deposit balances.
Individual interest rates used in the compilation of these series are generally selected from Moneyfacts, an independent service that provides rate and product information including mortgages, unsecured lending and deposit rates. In some instances the Bank also refers to individual bank and building society information to monitor products in conjunction with the data obtained from Moneyfacts.
Rates are included only for those institutions which advertise a product closely fitting the definition used for each series. Therefore the number of banks and building societies in the sample and the percentage coverage may vary from month to month as institutions withdraw from and introduce products to the market.
In the calculation of averages, the interest rates for individual banks and building societies are weighted using the end month or average monthly balances or new business amounts reported by those institutions
The Bank will not publish an average rate if there are less than three institutions in the sample for reasons of confidentiality and a concern that the average may not be particularly representative.
Where more than one product fits the definition for any series, the rate selected is the most competitive and/or has the fewest conditions attached.
When a bank or building society no longer offers a product closely fitting the criteria they are excluded from the sample until a relevant product is reintroduced.
Products must be widely accessible. Generally, those only available through intermediaries are excluded.
Rates selected relate to borrowing from, and deposits with, a sample of banks and building societies. Household business with other lenders and deposit takers is not covered.
All rates are expressed gross of tax.
All selected products are denominated in sterling.
Secured loan (mortgage) rates
Mortgage rates selected are those available to most borrowers. Products restricted to first-time buyers, for example, are excluded. Generally, rates are those available on loans in the range of £25,000 to £500,000. The headline advertised rate is selected rather than the APR (Annual Percentage Rate).
Loan-to-value ratio (LTV) measures the loan amount as a percentage of the property value; rates selected are the lowest available for loans of 75% and 95% LTV respectively.
Reasonable time margins are allowed for fixed maturity products. For example, mortgages with maturity between 21 and 27 months qualify as a two year loan. Products with redemption penalties at the end of the fixed maturity period are excluded.
Discounted variable rate mortgages are those attracting a short term (two year) discount relative to the institution’s Standard Variable Rate (SVR) or the Bank of England Bank Rate. Bank Rate tracker products are linked to the Bank of England Bank Rate for their term.
The Bank takes account of the effect of fees in determining which mortgage rate to include in the quoted rates sample where numerous products are available for each bank or building society. This is achieved by calculating the effective rate of mortgage repayments on a loan of £150,000 for the relevant fixation period including the product fee spread over the length of fix. The advertised rate for the most competitive product is selected for the quoted rate calculation.
Products that charge fees as a percentage of the mortgage are excluded. No allowance is made for charges or cash-backs.
Combined bank and building society mortgage interest rate series are weighted by gross monthly mortgage advances as reported on Form ER. The 2, 3 and 5 year fixed rate mortgages are weighted using new business gross advances for products fixed for 1-5 years. 10 year fixed rate mortgages are weighted using new business gross advances for products fixed for between 5 and 10 years. Variable rate mortgages are weighted using new business gross advances for floating rate mortgages.
Unsecured loan rates
The overdraft rates selected are those applicable for authorised overdrafts and are expressed in terms of EAR (Effective Annual Rate). Banks and building societies that charge a fee as opposed to a rate are excluded from the sample temporarily until a relevant rate is reintroduced. The overdraft rate series is weighted by monthly average outstanding overdraft balances reported on Form ER.
Personal loan rates are expressed in terms of APR. The Bank publishes quoted personal loan rates for amounts of £5K and £10K. No allowance is made for redemption penalties. The personal loan rates are weighted by monthly gross personal loan advances reported on the Form ER.
Credit card rates are expressed in terms of APR and apply to standard credit card purchases. If an institution offers more than one card, preference is given to what is deemed to be the most widely available. The credit card rate series is weighted by monthly gross credit card advances reported on the Further analysis of credit card lending return, Form IC.
Deposit rates
Instant access accounts are branch-based. Rates are selected for £1,000 balances. These rates are weighted using average sight deposit balances reported on Form ER.
Time deposit accounts are also branch-based. Rates are selected for £10,000 balances in accounts requiring between 30 and 90 days’ notice to withdraw without penalty. These rates are weighted using gross new time deposit balances reported on Form ER.
Cash individual savings account (ISA) rates are selected for £3,000 balances. Rates for cash ISAs are weighted by end-month cash ISA deposit balances reported on the balance sheet return, (Form BT).
Rates selected for fixed rate bonds have fixed initial maturity between 1 and 2 years. Rates are selected for £5,000 balances. Interest is calculated annually. Rates are weighted using gross new time deposit balances reported on Form ER.
Non-guaranteed bonuses are excluded for all deposit rate series. Moneyfacts publish interest rates calculated on both a monthly and annual basis. Interest rates that are calculated on a monthly basis are included where possible with exception of fixed rate bonds and Cash ISAs where annual interest rates are used.
The quoted household interest rates are published on two occasions during the month: provisionally on the 7th working day and again on the 21st working day.
As noted above, rates published on the 7th working day contain provisional end month data. They are weighted using the previous month’s balances or new business amounts, as reported on other Bank of England returns, and they may not include all rate changes that occurred up to the end of the month. They are therefore often revised when published on the 21st working day. The data published on the 21st working day represent end month quoted rates.
Data can also be revised as a result of the receipt of additional information or corrections to or refinements of existing data. In practice, such data revisions rarely occur beyond two years. Significant revisions to back data will be footnoted in the month in which the change occurs.
Any structural change to back data in the quoted rate series will be footnoted in the month when the change occurs. Because of the nature of these products, banks move into and out of the sample as products change. Significant changes that are the result of this will also be footnoted.
All significant methodological changes will be detailed in a footnote published in the month when the change occurs.
The current methodology for the calculation of the quoted rate series was introduced in January 2008. The combined bank and building society series were revised back to January 2005. The separate bank and building society series and some combined bank and building society series were discontinued from December 2007.
The previous methodology, which applies to all combined bank and building society series prior to January 2005 and all separate bank and building society series prior to their discontinuation, was based on a slightly different sample and used different balances for weighting. Individual bank rates were weighted together using monthly balance sheet returns. Mortgages were weighted using gross monthly mortgage advances reported on the Q1D return (now the IS return), overdrafts were weighted using end-month outstanding overdraft balances and personal loans were weighted using gross personal loan advances. Current accounts, instant access deposits, postal/telephone accounts and internet accounts were weighted using end-month sight deposit balances. Time deposits and fixed rate bonds were weighted using end-month time deposit balances. Credit cards and ISA deposits were weighted together using the same weights as the current series. Individual building society rates were weighted together using statistical data supplied to the FSA.
FURTHER INFORMATION
Relevant material published:
Quoted interest rates: Changes to quoted household interest rates series by Mhairi Burnett, Monetary and Financial Statistics (Bankstats), January 2008.
