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Trends in Lending June 2009


BANK OF ENGLAND

Trends in Lending June 2009 This publication presents the Bank of England’s assessment of the latest trends in lending to the UK economy. It draws mainly on long-established official data sources, such as the existing monetary and financial statistics collected by the Bank. These data are supplemented by the results of a new data set, established by the Bank in late 2008, to provide more timely data covering aspects of lending to the UK corporate and household sectors.(1) The Bank collects these data on behalf of the Lending Panel,(2) which was established by the Chancellor in November 2008 to monitor lending to the UK economy and to promote best practice across the industry in dealing with borrowers facing financial difficulties. The new data set — referred to as ‘Lending Panel data’ — covers the major UK lenders:(3) Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland. Together they accounted for around 65% of the stock of lending to businesses, 50% of the stock of consumer credit, and 70% of the stock of mortgage lending at the end of 2008. These data have provided a useful input to discussions between the major lenders and Bank staff, giving staff a better understanding of the business developments driving the figures and this intelligence is reflected in the report. The report also draws on intelligence gathered by the Bank’s regional Agents and from market contacts, as well as the results of other surveys. The focus of the report is on lending, but broader credit market developments, such as those relating to trade credit or capital market issuance, may be discussed where relevant. The report covers official data up to April 2009, supplemented by Lending Panel data and intelligence gathered up to end-May 2009. Unless stated otherwise, the data reported cover lending in both sterling and foreign currency, are expressed in sterling terms, and are not seasonally adjusted. Lending Panel data are provided to the Bank on a ‘best endeavours’ basis. This, together with their relative timeliness, means that they may not be as accurate as established data sets. As a result, care is needed in interpreting the data presented in this report.

(1) For a fuller background please refer to the first edition of Trends in Lending available at: www.bankofengland.co.uk/publications/other/monetary/TrendsApril09.pdf. (2) The Lending Panel comprises Government, lenders, consumer, debt advice and trade bodies, regulators and the Bank of England. See www.hm-treasury.gov.uk/press_126_08.htm. (3) Membership of the group of major UK lenders is based on the provision of credit to UK-resident companies and individuals, regardless of the country of ownership.


Contents

1

Executive summary

3

Lending to UK businesses

4

Box Recent trends in lending to the real estate sector

6

2

Mortgage lending

8

3

Consumer credit

10

Glossary and other information

11


Executive summary

Executive summary April official data showed the weakest flow of net lending to businesses since June 2000. The major UK lenders reported that net lending remained very weak in May. Much of the gross lending reflected the refinancing of existing loans. Some borrowers have secured, at a cost, early refinancing using ‘forward start agreements’, though the tenor of new facilities tends to be shorter than in the past. Lenders report that demand for new credit continues to be constrained by weak investment intentions and businesses’ desire to reduce debt levels. Gross mortgage lending has continued to weaken, largely because of weaker remortgaging activity. The major UK lenders reported an increase in approvals for mortgages for house purchase in May. And there are some indications that mortgage availability has increased over the past month. However, lenders have highlighted a number of frictions that might delay the effect on completed housing market transactions and mortgage lending. Net flows of consumer credit have remained weak, particularly for unsecured loans — consistent with depressed spending on big-ticket items like cars. Effective interest rates on overdrafts and personal loans have fallen by much less than Bank Rate, and rates on credit cards have remained broadly unchanged, in part reflecting heightened credit risk. Lenders expect arrears and write-offs to increase if unemployment rises further.

3


4

Trends in Lending June 2009

1 Lending to UK businesses April official data showed the weakest flow of net lending to businesses since June 2000. The major UK lenders reported that net lending remained very weak in May. Much of the gross lending reflected the refinancing of existing loans. Some borrowers have secured, at a cost, early refinancing using ‘forward start agreements’, though the tenor of new facilities tends to be shorter than in the past. Lenders report that demand for new credit continues to be constrained by weak investment intentions and businesses’ desire to reduce debt levels. Recent lending data

Table 1.A Lending to UK businesses(a) Averages

2009

2007

2008

Jan.

Feb.

Mar.

Apr.

Net monthly flow (£ billions)

7.0

4.0

1.7

-0.5

1.3

-5.4

Three-month annualised growth rate (per cent)

19.4

10.7

1.3

1.2

1.7

-3.1

Twelve-month growth rate (per cent)

16.5

17.1

8.0

5.7

4.0

1.3

(a) Lending by monetary financial institutions to UK private non-financial corporations. Investments and holdings of securities are not included. Seasonally adjusted data.

Lending Panel data suggest that the value of gross new corporate loan facilities granted fell slightly in May (Chart 1.1). Lenders report that most gross lending reflects the refinancing of past loans, so as Chart 1.1 shows, new facilities tend to be offset by the removal of existing facilities, and are not flowing through into net new lending.

Chart 1.1 Corporate loan facilities granted and withdrawn(a) Gross new loan facilities granted Reduced or removed loan facilities

£ billions

20 15 10 5

+ 0

– 5 10

Dec. 2008

Jan.

Feb.

Mar. 09

Apr.

May

Official data covering lending by all banks and building societies showed that the flow of net lending was negative in April, the largest monthly fall in lending since June 2000 (Table 1.A). The major UK lenders reported that their net lending flows remained very weak in May. One of the few sectors where reported net lending flows were still positive, though well below those a year ago, was the real estate sector. The box on page 6 explains recent trends in lending to that sector.

15

(a) Lending Panel data, which are generally of lower quality than official data sources.

Since the start of the year the major UK lenders have reported that a number of companies have refinanced earlier than usual by using ‘forward start agreements’. Under these arrangements lenders agree, often well in advance, to extend a borrower’s facility on its expiry. The benefit to lenders is that they secure future business at an earlier date than usual, which helps them to plan their future funding needs. It also allows them to reprice the facility to current prevailing spreads, which are much higher than those on facilities agreed before the financial crisis. For the borrower the agreements provide certainty of future funding so that their auditors are in a better position to make appropriate assurances about the company’s future viability. Concerns about the possible withdrawal of foreign lenders from existing lending syndicates may have added to the demand for early refinancing. The major UK lenders report that the average maturity of new lending has fallen relative to before the crisis. Historically, the extra cost associated with borrowing over longer periods had been relatively small, and so loan facilities would typically be


Section 1 Lending to UK businesses

5

arranged with maturities of five to seven years. But since the onset of the crisis, lenders have found it very difficult and costly to raise longer-term funding and they have reflected that in the prices they charge for longer-term facilities. A reluctance by companies to lock in those higher costs over a long period, given uncertainty about future demand, had reportedly contributed to a decline in the maturity of new lending to two to three years. To some extent, large investment-grade companies seeking longer-term facilities have instead been able to borrow in the capital markets given improved market conditions in recent months.(1)

Chart 1.2 Change in availability of new credit lines over the past three months(a) January February

March May

Net percentage balances 20

+ 0

– 20

40

60

80

Overall

SMEs

Large

Very large

100

Source: CBI Access to Finance survey. (a) The percentage of respondents to the CBI Access to Finance survey who reported an improvement in availability, minus the percentage reporting a deterioration, in the three months prior to each survey. A negative net balance indicates a decline in availability. No survey was conducted in April.

Lenders have continued to report subdued demand for new loans, which they partly attribute to weak investment intentions. To some extent companies may have reduced their investment plans because credit has become more expensive or harder to obtain. In a survey of credit conditions, conducted in May by the Bank of England’s regional Agents, over 80% of respondents considered that external finance had become more expensive or harder to obtain over the past year.(2) And around two thirds of those facing tighter credit conditions had responded by reducing investment. Lenders also report that businesses remain keen to reduce their levels of indebtedness, for example by raising equity to repay bank debt. The May CBI Access to Finance survey indicated that the availability of new credit lines had continued to deteriorate, though at a slower rate than at the beginning of the year (Chart 1.2).(3) Recently, some business contacts of the Bank’s regional Agents have noted a slight improvement in the major UK lenders’ appetite to extend credit. However, this sense was by no means universal among contacts. Several lenders reported some increase in competitive pressures, perhaps reflecting attempts by those banks which have made lending commitments to attract new business.

Corporate loan pricing Chart 1.3 Effective interest rate on new lending to UK businesses(a) Per cent

10

Three-month Libor 8 Effective interest rate on new lending 6 Bank Rate 4

2

2005

06

07

08

09

The total cost of bank finance to a company can be decomposed into the fees charged by the bank to provide facilities, the spread over a given reference rate (Libor or Bank Rate) at which loans are offered, and the prevailing level of that reference rate in the financial markets. Contacts of the Bank’s regional Agents have continued to report paying higher fees and spreads on renewed or extended facilities. Since the beginning of the year, increases in spreads on loan facilities have been reflected in the Bank’s data on effective interest rates on corporate lending, which have fallen by less than Libor or Bank Rate (Chart 1.3). As noted above, lenders have continued to refer to high longer-term funding costs as a factor behind wider spreads

0

Sources: Bank of England and Bloomberg. (a) The Bank’s effective interest rates series comprise data from 29 monetary financial institutions.

(1) For more details see www.bankofengland.co.uk/publications/quarterlybulletin/mo09may.pdf. (2) See www.bankofengland.co.uk/publications/agentssummary/agsum09jun.pdf. (3) See www.cbi.org.uk/pdf/20090501-cbi-access-to-finance-survey.pdf.


6

Trends in Lending June 2009

Recent trends in lending to the real estate sector

Chart A Contributions to growth in lending to the real estate sector(a)

Lending to the real estate sector comprises lending to companies who develop, buy, sell and rent real estate.(1) Following rapid growth for much of the past decade, lending to the real estate sector accounted for around 40% of the total outstanding stock of lending to non-financial corporations in March 2009, up from 20% in December 2000. That growth in lending was associated with a sharp increase in commercial property prices. But since the peak in June 2007, commercial property prices have now fallen by over 40%, the largest decline since records began in 1971, based on the IPD index as at April 2009.(2) Net lending to the real estate sector was at first slow to react to the deterioration in the real estate market, remaining strong until mid-2008. Since then, growth in lending has more than halved (Chart A), with the major UK lenders and foreign lenders both contributing to that slowdown. Yet annual growth in lending to the real estate sector has remained much more robust than in other sectors (Chart B). Given current conditions in the real estate market, on first glance this appears puzzling. Discussions with the major UK lenders revealed several possible explanations for the remaining strength in lending.

Percentage points Foreign lenders

Other lenders

Major UK lenders

Total (per cent)

30

20

10

+ 0

–

2000

01

02

03

04

05

06

07

08 09

10

(a) Twelve-month growth rates in the stock of lending.

Chart B Growth in lending to the real estate and other sectors(a) Percentage changes on year earlier

25

20

Real estate

15

Other sectors

10

5

Lenders explained that continued net lending to the real estate sector in recent periods had been driven almost entirely by previously committed facilities being drawn down. Most of the drawdowns reflected the activities of property investment companies, who tend to agree a facility, and subsequently (with a lag which reflects legal and other factors associated with property acquisition) draw it down in full. The remaining drawdowns reflected the activities of property development companies, who use a facility to fund projects over a number of years. As a result, these facilities tend to be drawn down more gradually. According to CB Richard Ellis, a commercial real estate advisor, the volume of newly completed office space in the City of London is expected to peak this year at its highest level since 2003. These lags in development and the drawdown of finance help explain why growth in lending has not responded more quickly to the fall in commercial property values. Lenders said that very little new business was currently being written, and Lending Panel data confirm that the value of net new facilities granted was close to zero in April and May. That is consistent with the De Montfort University survey of lending to the UK commercial property market, which found that at the end of 2008 a net balance of lenders expected to reduce loan originations in 2009.(3) Given the decline in commercial property values, an increasing number of borrowers have breached loan to value (LTV) covenants. The major UK lenders report that they have been accommodating these breaches, rather than potentially incurring losses by forcing the sale of commercial property into

+ 0

– 2005

06

07

08

09

5

(a) Lending by monetary financial institutions to UK private non-financial corporations.

a depressed market, provided there is still sufficient rental income to service the debt. But some lenders have been encouraging companies to inject equity where possible, and there have been a number of examples of real estate companies raising equity in recent months and using the proceeds to repay bank debt. Lenders said that any new business would typically be done at much lower LTV ratios (around 70%) than before the financial crisis (around 85%), and at much higher interest rate spreads. The De Montfort University survey showed that at the end of 2008, interest rate spreads and arrangement fees were approximately double those prevailing for much of the decade. Looking forward, some lenders noted a slight increase in interest from property investors, who were beginning to be attracted by the potential future yield from commercial property, given how much prices had already fallen. Overall though, lenders reported that the outlook for real estate lending was very subdued. (1) It includes lending to housing associations but does not include lending to companies involved in the construction of residential or commercial property. (2) Investment Property Databank (IPD) index of UK commercial property capital values. (3) The UK Commercial Property Lending Market: Year-End 2008 Research Findings, De Montfort University, May 2009.


Section 1 Lending to UK businesses

Chart 1.4 Write-offs on lending to UK businesses and individuals(a) ÂŁ billions 2.5 Consumer credit 2.0

1.5 Businesses(b) 1.0 Mortgage lending 0.5

0.0 1993

96

99

2002

(a) Lending by monetary financial institutions. (b) Private non-financial corporations.

05

08

over Libor and Bank Rate (for more details see May Trends in Lending). Funding conditions had eased slightly over the past month, but lenders reported that it remained difficult and expensive for them to borrow at maturities of longer than three years. They have also reported that the deteriorating credit quality of borrowers — reflected by higher write-offs (Chart 1.4) — has led them to set aside more capital against lending, contributing to a widening of spreads. In addition, increases in spreads are likely to reflect in part a repricing of risk, following a prolonged period earlier in the decade when corporate credit risks were often underpriced.

7


8

Trends in Lending June 2009

2 Mortgage lending Gross mortgage lending has continued to weaken, largely because of weaker remortgaging activity. The major UK lenders reported an increase in approvals for mortgages for house purchase in May. And there are some indications that mortgage availability has increased over the past month. However, lenders have highlighted a number of frictions that might delay the effect on completed housing market transactions and mortgage lending. Recent lending data

Chart 2.1 Gross mortgage lending by the major UK lenders(a)(b) £ billions

Official data covering all lenders showed that gross mortgage lending fell further in April, the weakest flow since December 2000. The major UK lenders, who have accounted for some 80% of total gross lending flows over the past year, reported a further weakening in May (Chart 2.1). Chart 2.1 also provides a split of gross lending by purpose over time, and shows how the fall in gross lending flows since early 2008 has been concentrated in remortgaging activity. As discussed in previous reports, the major UK lenders have attributed part of that decline to falls in standard variable mortgage rates (SVRs), relative to other mortgage rates. Many shorter-term mortgage deals revert to SVRs on maturity, so the relative decline in SVRs has reduced the incentive for borrowers to refinance expiring mortgage deals. Falls in house prices are also likely to have contributed to low remortgaging activity as some households will no longer have sufficient equity to qualify for a new mortgage with another lender at a more competitive interest rate.

25

Net lending Gross lending Net lending

Remortgaging Other House purchase

20 Lending Panel data 15

10

5

Jan.

July 2008

0

Jan. 09

(a) The split in 2008 is estimated using gross lending data and the split of loan approval values between house purchase, remortgaging and other advances. The split using Lending Panel data in 2009 is reported, rather than estimated, data. Seasonally adjusted data. (b) Lending Panel data are generally of lower quality than official data sources.

Chart 2.2 Mortgage repayments(a) £ billions

25

Total 20

Lower remortgaging activity and turnover in the housing market also account for a sharp decline in mortgage repayments, as fewer mortgages are redeemed (Chart 2.2). There has been no significant change in other lump sum type repayments or regular repayments. Lenders have reported that, while some households may have used part of the gain from lower interest payments to increase the rate at which they are paying off their mortgages, others may be making lower repayments because they are experiencing financial difficulties or are more uncertain about their future financial position.

15

Repayments on redemption

10

Other lump sum

5

Regular repayments

2006

07

08

09

0

(a) Sterling repayments only. Seasonally adjusted data.

Table 2.A Secured lending to individuals(a) Averages

Net monthly flow (£ billions)

2009

2007

2008

Jan.

Feb.

Mar.

Apr.

9.0

3.4

1.0

1.4

0.6

1.0

Three-month annualised growth rate (per cent)

10.4

4.0

1.2

1.4

1.0

1.0

Twelve-month growth rate (per cent)

11.0

6.9

2.9

2.4

1.9

1.5

(a) Lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data.

The major UK lenders reported that the flow of secured lending on a net basis — the difference between gross mortgage lending and mortgage repayments — remained weak in May (Chart 2.1). That continues the trend evident in the official data for total net mortgage lending up to April, when the twelve-month growth rate fell to 1.5% (Table 2.A).


Section 2 Mortgage lending

Chart 2.3 Applications and acceptances for mortgages for house purchase(a)(b)(c)

80

Number of applications (left-hand scale) Total acceptance rate (right-hand scale) Thousands

Per cent

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

Dec. 2008

Jan.

Feb.

Mar. 09

Apr.

0

May

(a) Reported by the major UK lenders in the Lending Panel sample. (b) Lending Panel data are generally of lower quality than official data sources. (c) Absolute levels should be given less weight than any movement over time. The acceptance rate in a given month is unlikely to apply to the applications that month. More than one application may be made for a mortgage.

Chart 2.4 Approvals for mortgages for house purchase(a) Thousands

140

Major UK lenders(b) Major UK lenders (Lending Panel data)(b)

120

Total(c) 100 80 60 40 20

2007

08

0

09

(a) Seasonally adjusted. (b) Gross approvals data. (c) Monetary financial institutions and other lenders. These data are net of cancellations and hence the total can fall below the gross approvals data shown for the major UK lenders.

Chart 2.5 Effective interest rates on new mortgage lending to individuals(a)

9

But, looking at lending for house purchase specifically, gross lending by the major UK lenders has risen slightly since the start of the year. Lending Panel data show that mortgage applications have risen over recent months, and approval rates have edged higher (Chart 2.3). Approvals for house purchase have therefore increased, and rose slightly further in May in the Lending Panel data, though from historically low levels (Chart 2.4). Consistent with that, contacts of the Banks’ regional Agents have started to report a slight improvement in the availability of mortgages. The number of 90%-plus loan to value (LTV) mortgages available remains only around one tenth of the number on offer a year ago, but did increase slightly in May, according to data from Moneyfacts Group. The major UK lenders reported that signs of stabilisation in housing market activity and prices had made them marginally more inclined to lend at higher LTVs. While there are tentative signs of increased mortgage availability, some lenders have pointed to various frictions that might delay the effect on completed housing market transactions and mortgage lending. For example, difficulties in valuing properties in present market conditions can lead to delays in the mortgage approvals process, a factor also reported by contacts of the Banks’ regional Agents. Some lenders have reported that this has contributed to breaks in housing transaction chains, so that approved mortgages are more than usually prone to cancellation before lending is advanced.

Mortgage pricing In April, the effective interest rates on new floating and fixed-rate mortgages fell slightly (Chart 2.5). But the overall rate on new mortgage lending has remained close to 4% since the beginning of the year, as borrowers have increasingly chosen to take out fixed-rate mortgages, which currently have a higher interest rate than floating-rate mortgages. The major UK lenders did not report any significant changes to pricing in May, but there were examples where they had increased the LTV ratios at which they would offer their lowest rates.

Per cent 8 Fixed mortgage rate Floating mortgage rate 6

Bank Rate 4

Overall mortgage rate 2

2005

06

07

08

09

0

(a) The Bank’s effective interest rates series comprise data from 29 monetary financial institutions.

Since September 2008, effective interest rates on new floating and fixed-rate mortgages have fallen by less than Bank Rate and swap rates respectively, consistent with a widening of mortgage spreads. Some lenders have partly attributed that to increases in the price of their longer-term funding relative to swap rates (see also Section 1). But greater credit risk, indicated by the increase in write-offs on mortgage lending (Chart 1.4), has also contributed to higher spreads. Lenders expect write-offs to increase further if unemployment continues to rise.


10

Trends in Lending June 2009

3 Consumer credit Net flows of consumer credit have remained weak, particularly for unsecured loans — consistent with depressed spending on big-ticket items like cars. Effective interest rates on overdrafts and personal loans have fallen by much less than Bank Rate, and rates on credit cards have remained broadly unchanged, in part reflecting heightened credit risk. Lenders expect arrears and write-offs to increase if unemployment rises further. Recent lending data

Table 3.A Unsecured lending to individuals(a) Averages

Net monthly flow (£ billions)

2009

2007

2008

Jan.

Feb.

Mar.

Apr.

1.1

1.0

0.1

0.1

0.1

0.3

Three-month annualised growth rate (per cent)

6.4

5.2

2.1

0.9

0.4

0.8

Twelve-month growth rate (per cent)

6.1

6.3

4.7

3.7

3.1

2.9

(a) Lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data.

Chart 3.1 Net unsecured lending flows(a) £ billions

2.5

Other unsecured Credit card 2.0

Total unsecured net lending flows remain weak (Table 3.A). Net credit card lending has been subdued for some time, following a significant tightening in availability in response to the increase in write-offs in 2005 (Chart 1.4) — for example nearly all lenders now charge fees on balance transfers, whereas before 2005 these had been offered on a 0% interest rate and no-fee basis (see April Trends in Lending). The sharp decline in unsecured lending flows over the past year has primarily reflected a decline in other forms of unsecured lending (Chart 3.1). That is consistent with the weakness in consumer spending on big-ticket items like cars, which are more likely to be financed with personal loans rather than credit cards.

1.5

1.0

The major UK lenders reported that unsecured lending remained weak in May, with little change observed in either the availability of, or demand for, consumer credit.

0.5

+ 0.0

– 2004

05

06

07

08

09

0.5

(a) Lending by monetary financial institutions and other lenders to UK individuals. Seasonally adjusted data.

Chart 3.2 Effective interest rates on unsecured lending(a)(b) Per cent

20

Credit cards (interest bearing only) 15

Credit cards (all) Overdrafts 10

New personal loans(c) 5 Three-month Libor Bank Rate 2001

03

05

07

09

0

Sources: Bank of England and Bloomberg. (a) The Bank’s effective interest rates series comprise data from 29 monetary financial institutions. (b) The rate for personal loans is for new business. For the other series the rates shown are for the stock of lending, as comparable data for new lending are not available. (c) Only available from January 2004.

Consumer credit pricing Effective interest rates on overdrafts and personal loans have fallen in recent months, though by much less than Bank Rate and Libor. By contrast, rates on credit cards have remained broadly unchanged, at levels well above those prevailing prior to the tightening of availability that began in 2005 (Chart 3.2). The recent widening in spreads is reported to reflect in part lenders’ perceptions of heightened credit risk on unsecured lending. Write-offs on consumer credit remained close to historic highs in 2009 Q1, and lenders expect arrears and write-offs to increase if unemployment rises further.


Glossary and other information

Abbreviations CBI – Confederation of British Industry. Libor – London interbank offered rate (see below). LTV – loan to value ratio (see below). SMEs – small and medium-sized enterprises. SVR – standard variable rate.

Real estate sector Reference rate

Remortgaging

Glossary Bank Rate

The official rate paid on commercial bank reserves by the Bank of England. Businesses Private non-financial corporations. Consumer credit Borrowing by UK individuals to finance expenditure on goods and/or services. Consumer credit is split into two components: credit card lending and ‘other’ lending (mainly overdrafts and other loans/advances). Effective interest The weighted average of calculated rates interest rates on various types of deposit and loan accounts. The calculated annual rate is derived from the deposit or loan interest flow during the period, divided by the average stock of deposit or loan during the period. Facility An agreement in which a lender sets out the conditions on which it is prepared to commit to advance a specified amount to a borrower within a defined period. Forward Start A commitment, made well in advance, Agreement to refinance an existing liability when it becomes due. Gross lending The total value of loans advanced by an institution in a given period. Loan approvals Lenders’ firm offers to advance credit. Loan to value ratio Ratio of outstanding loan amount to the (LTV) market value of the asset against which the loan is secured (normally residential or commercial property). London interbank The rate of interest at which banks offered rate (Libor) borrow funds from each other, in marketable size, in the London interbank market. Major UK lenders Banco Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland. Monetary financial A statistical grouping comprising banks institutions and building societies. Mortgage lending Lending to households, secured against the value of their dwellings. Net lending The difference between gross lending and gross repayments of debt in a given period.

Swap rate

Term funding

11

Businesses that buy, sell, develop and rent real estate. The rate on which loans to businesses are set, with an agreed margin over the reference rate (typically these will be Bank Rate or Libor). A process whereby borrowers repay their current mortgage in favour of a new one secured on the same property. The fixed rate of interest in a swap contract in which floating-rate interest payments are exchanged for fixed-rate interest payments. Swap rates are a key factor in the setting of fixed mortgage rates. Funds raised for a fixed period of time.

Symbols and conventions Except where otherwise stated, data are not seasonally adjusted and the source of data in charts is the Bank of England. On the horizontal axes of graphs, larger ticks denote the first observation within the relevant period, eg data for the first quarter of the year.

© Bank of England 2009 ISSN: 2040-4042 (online)

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