Thursday, 20 November 2014

Fun with numbers: Outstanding residential mortgages x Standard Variable Rate

We know that total lending has gone up a lot over the last fifteen years (Chart A), but also that interest rates have come down (Chart B). Both of these figures are pretty meaningless; increases in total lending are cancelled out by reductions in interest rates.

The "real" £££ number is the two multiplied together:

Chart C) how much interest the banks can earn, and

Chart D) how much households have to pay in mortgage repayments.

You can draw whichever conclusions you like, but here goes.

Using data downloaded from the Bank of England's Interactive Data page…

The concept of "Standard Variable Rate" is becoming less relevant because of all the introductory teaser fixed rates, but at least there is a consistent series:

If we assume that three-quarters of bank lending to households and businesses is residential mortgages and multiply up by the SVR from Chart B, the total interest charges which banks collect are as follows, apart from the 2007-2008 'blip' just prior to the 'credit crunch':

More relevant is the overall cash flow, i.e. repayments of principal + interest. Assuming a constant remaining term of 20 years, the total annual payments booked by UK banks are as follows; this is the figure which has doubled over the last 15 years:


Lola said...

Nice piece of analysis. Thank you.