What’s the point of an ‘average’ mortgage rate, and why does it matter to the Bank of England? Mortgage rates often hit the news with headline-grabbing low rates, or rate increases for certain mortgage products. An average mortgage rate strips away the extremes, and as I will outline can represent both what is available to the average borrower, and what is experienced.
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.