Interest Rates

  • T. J. Gough


It has been said that the operation of building societies can be described in essence by their characteristic of borrowing at short term and lending long term. Modern developments in building society practices make this an over-simplification. For example, much of the growth in investment recently has come from term shares where the society is effectively borrowing for a much longer period (up to 5 years) compared to the ordinary share account. Likewise, although mortgages are contractually over a long period, they generally get repaid far more quickly, as people change houses; also some of the lending does not go on mortgages and is held in liquid form, some of this at very short notice. Despite these qualifications it is still broadly true to say that the majority of their business is still centred on borrowing short and lending long.


Interest Rate Saving Rate Excess Demand Cost Curve Marginal Revenue 
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  1. 1.
    Tucker, K. A., Economies of Scale in Retailing, p. 3 (Saxon House, 1975).Google Scholar
  2. 2.
    Gough, T. J. and Taylor, T.W., The Building Society Price Cartel, Hobart Paper No. 83 (Institute of Economic Affairs, July 1979).Google Scholar
  3. 3.
    Ibid. p. 18.Google Scholar
  4. 4.
    For example see Koutsoyiannis, A. Modern Microeconomics, 2nd edn (Macmillan, 1979).Google Scholar
  5. 5.
    Banks tend to offer bridging loans between buying one house and selling another; insurance companies tend to concentrate on the top, expensive end of the market; and local authorities generally lend on low-value, high-risk properties which building societies would avoid.Google Scholar
  6. 6.
    An inelastic demand curve is one in which demand is generally unresponsive to price change. More formally, the ratio of the percentage change in demand, to the percentage price change, is less than unity. Inelastic demand curves therefore typically have a steep slope. Conversely an elastic demand curve shows a highly responsive change in demand to a change in price. They generally have a very shallow slope.Google Scholar
  7. 7.
    Note that slightly different horizontal axes are used in Figures 5.2 and 5.3, but as most savings funds are transformed into mortgages, the difference is not of great significance.Google Scholar
  8. 8.
    Griffiths, B., Competition in Banking, Hobart Paper No. 51 (Institute of Economic Affairs, December 1970).Google Scholar
  9. 9.
    Gough and Taylor, The Building Society Price Cartel.Google Scholar
  10. 10.
    Ibid. p. 13.Google Scholar
  11. 11.
    National Board for Prices and Incomes, ‘Rate of Interest on Building Society Mortgages’, Report No. 22, Cmnd. 3136 (HMSO, November 1966).Google Scholar
  12. 12.
    Gough and Taylor, The Building Society Price Cartel p. 38.Google Scholar
  13. 13.
    Ibid. p. 37.Google Scholar
  14. 14.
    Break-up of the mortgage “cartel” ’, Financial Weekly 23 November 1979.Google Scholar

Copyright information

© T. J. Gough 1982

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  • T. J. Gough

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