In recent years there has been a notable move to lenders charging a daily or monthly fee on overdrafts. Although not technically an interest rate, they are nonetheless a cost of borrowing. And in some cases, may have replaced interest charges entirely. So are customers charged more than the interest-charging overdraft rate alone suggests?
Since 2012, long term rates have fallen and there have been various other policy packages to boost credit availability and lower borrowing costs. But how have these fed through to different types of fixed mortgage rates?
How have falling retail deposit interest rates affected savers’ behaviour? One place to look is the market for fixed-rate bonds, which give a guaranteed interest rate for a set period of time. These rates tend to be higher than instant access accounts, because customers must tie up their deposits to receive the higher rate. Fixed-rate bonds represented around 40% of new time deposits in January 2017. Continue reading
Evidence suggests that small and medium-sized businesses (SMEs) rely more on bank credit than other businesses. So how has their cost of borrowing fared since last year’s Bank Rate cut? And how do their rates compare with overall businesses? Continue reading
Fernando Eguren-Martin and Karen Mayhew.
Many would say that when domestic interest rates rise (relative to abroad) the domestic currency will appreciate. But is it right to think like this? In this blog we use exchange rate theory to inform this discussion and to assess the importance of relative interest rates in accounting for past exchange rate moves. We find that relative interest rates typically move in the same direction as exchange rates but most of the time they account for a small share of exchange rate variation. However, academics might question our use of such a theory as its failure to forecast exchange rates is well documented. We show that this is somewhat unfair, as even if the framework is not very useful in terms of forecasting it is still a useful tool for decomposing past moves in exchange rates.
Authors: Gareth Anderson and Matt Roberts-Sklar.
UK mortgage rates play an important role in the transmission mechanism of monetary policy, but are they home-grown? UK swap rates are a key component in determining UK mortgage rates. And UK swap rates are highly correlated with those in the US. Putting these pieces together, we show that UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swaps. This highlights one important channel through which global financial spillovers affect small open economies such as the UK.