This means that fixed rate mortgages are now more expensive than floating or very short-term fixed rate mortgages. This has seen many borrowers shift back to floating rates over the past two years. As a result, as we move the OCR higher it is likely to have more “bite” than it did previously.
However, for the average borrower it is not reasonable to assume that funds would be available at the risk-free rate by issuing securities instead of approaching a bank for a loan. Term-mismatch between savers and borrowers and informational asymmetries explain why the financial intermediation services provided by banks are so important for the operation of market economies.