What the series measures
This is the Bank of England's effective interest rate on new mortgages to individuals, series CFMZ6JM in its database. "Effective" means calculated from what borrowers are actually charged: the Bank's explanation of effective rates describes them as the interest chargeable in the period divided by the average balance, then annualised. "New" means new business in the month: new loans advanced, and existing loans whose terms were renegotiated.
It is the figure the Bank's monthly Money and Credit release reports when it says the effective rate on newly drawn mortgages rose or fell. That release also gives the rate on the whole stock of outstanding mortgages, which moves far more slowly because much of it is on deals fixed in earlier years.
Who compiles it and how
Banks and building societies report interest and balances to the Bank on its effective rates return, Form ER, and the Bank aggregates them as weighted averages. Its reporting definitions say what counts as new business. A remortgage to a new lender and a switch to a new deal with the same lender both count, because the terms change. A mortgage that rolls automatically onto a lender's standard variable rate when its fixed period ends does not, because nothing was renegotiated.
Quoted rates and effective rates
The Bank publishes two kinds of mortgage rate, and they answer different questions.
- Quoted rates, such as the 2-year fixed rate at 75% LTV, are advertised rates on one defined product. They show what is on offer to a borrower with a given deposit today.
- The effective rate is an average over the loans lenders actually agreed, whatever their type, length of fix or loan to value. It shows what borrowers are paying.
The two differ for reasons that have nothing to do with lenders changing prices. If more people choose five-year fixes than two-year fixes, or more first-time buyers borrow at high LTV, the effective rate moves because the mix of loans changed. And a mortgage is usually drawn some weeks after its rate was agreed, so when advertised rates turn, the effective rate tends to follow later. The chart shows it in 2023: quoted two-year fixed rates peaked in July, while the effective rate kept rising until November.
How to use it with your own mortgage
The effective rate is the better guide to what your neighbours are paying; the quoted rates are the better guide to what you could get. If you are coming to the end of a fixed deal, compare offers with the quoted rate for your LTV and fix length, not with this average, which blends deals you may not qualify for and some you would not choose.
Quoted rates leave arrangement fees out, so compare offers on their total cost over the deal period, fee included. The mortgage calculator shows the monthly payment at any rate, and the rent vs buy calculator takes the same rate. Read this tracker beside Bank Rate to see how quickly a change in policy reaches what borrowers pay.
Reading the chart and the table
Each point is one month, dated the first of the month; the Bank's database dates the same figure on the month's last day. The table summarises the months by calendar year. Values are to two decimal places, as the Bank publishes them, and the series begins in January 2016. Recent months can be revised after they are first published, so a figure here may differ slightly from the one in that month's Money and Credit release.