1. Expansion of the sample
First, there will be an increase in the number of lenders in the sample. Interest rates from the whole market will be collected, compared with the current sample that covers at least 75% of the market for household lending and deposits and is consistent with the Effective Rates (ER) sample. This sample change means that smaller banks will be better represented in the data.
Expanding the sample will require a change to the weighting methods that are used to calculate average ‘quoted rates’. This is because many lenders in the new expanded sample are not included in the ER data collection, which has been mostly used to weight quoted rates data to date. The weighting method used for the new data will vary by product.
For mortgages, the FCA’s ‘Product Sales Data’ (PSD) will be used to calculate weights. The PSD captures details of all mortgage contracts at the point of origin. New weights will be based on banks’ lending volumes for the same product - for example the owner occupier 2 year fixed-rate 75% loan-to-value (LTV) mortgage - that a rate has been selected for. This will be a more accurate weight than the current method of using the closest approximation for a product from ER data. For example, the quoted interest rate on the product above is currently calculated using weights based on institution’s mortgage lending with a fixation period of up to 2 years.
For time deposits (deposits where notice is required to withdraw funds), the expansion of the sample means a variety of different data sources will need to be used to weight lenders’ rates together. For around 90% of the market the value of new time deposits from the ER data collection will continue to be used. The granularity of this data corresponds closely with the quoted rates products. For the remaining 10% of the market not covered by this collection, data on the stock of deposits collected on the Bank’s other statistical returns will be used for weighting.1 For sight deposits (deposits available on demand), the stock of deposits collected on the Bank’s Balance Sheet (BE) return will be used to weight all lenders’ rates.
For credit card and personal loan quoted rates, the value of new lending from the Bank’s Lending to Individuals data will be used for weighting around 95% of the sample. The remainder of the sample will be weighted using data on the stock of lending from the Bank’s Balance Sheet (BE) returns. For overdrafts, the stock of ER data will be used to weight around 80% of the market, with the Balance Sheet (BE) data used to weight the remainder.
Using stock balances to weight a portion of the data for deposit and consumer credit series is not ideal because quoted interest rates data aim to capture rates available to new customers. However, the benefit of this approach is that it enables the inclusion of a wider range of lenders in the sample.