This extension builds on the success of the FLS so far, and has three main objectives: to give banks and building societies confidence that funding for lending to the UK real economy will be available on reasonable terms until January 2015; to increase the incentive for banks to lend to small and medium-sized enterprises both this year and next; and to include lending involving certain non-bank providers of credit, which play an important role in providing finance to the real economy.
Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA), says:
“After weeks of speculation we welcome the confirmation that the Bank of England is extending the Funding for Lending Scheme (FLS) until January 2015. But while supporting lending to small and medium-sized enterprises (SMEs) is vital to the economy, we are concerned that targeting the revised scheme towards UK businesses could limit the gains for the mortgage market.
By incentivising SME lending so heavily for the rest of 2013, there is a real danger this will overshadow the continuing need to boost the supply of funding to the housing market. Although the equity loan element of Help To Buy is already ‘live’, the mortgage guarantee scheme does not begin until January 2014 and it can take months for initiatives like these to become fully operational. The last thing the market needs is an artificial ‘stop-start’ momentum.
The FLS has certainly improved the availability of mortgage credit, but there is significant untapped demand for higher loan-to-value (LTV) lending. We have consistently called for the inclusion of specialist lenders in the scheme alongside banks and building societies, to take advantage of their innovative approach. Extending the FLS is an important development, and we await further detail and discussions with the Bank around the role of non-banks not least to ensure a fully competitive mortgage market.”
The Council of Mortgage Lenders today welcomes the time extension and the indirect extension to include lending by non-bank mortgage lenders, in the changes announced today by the Bank of England to its Funding for Lending scheme.
Paul Smee, CML director general, said:
"It is helpful to have early confirmation that the FLS will be extended for a further year. This will minimise the risk of disruption to lending flows that might arise in anticipation of the closure of the scheme.
We welcome the indirect extension of the scheme to non-bank mortgage lending too. Although non-bank lenders cannot access the scheme directly, any banks that lend to them will now be able to include that lending as eligible for inclusion in the FLS. This ought to result indirectly in the benefits of the FLS scheme being passed through to non-bank mortgage lenders."
Duncan Kreeger, director at peer-to-peer lender West One Loans, comments:
“Sadly, lending by BBA member banks is still struggling. Lending is down against last month and last year, and it’s still a staggering 63% beneath the pre-crisis peak. But this is all in the context of unprecedented support and subsidy. Of the 22 members of the BBA, 14 have benefitted from a taxpayer bailout, and all 22 have made use of the specially-tailored cheap money from Funding for Lending. Widening FLS to include non-banks is a step in the right direction, but Funding for Lending is still a subsidy for established lenders. Financial markets need to be more flexible, not more bureaucratic.
It’s particularly disappointing to see yet another drop in business lending, especially since alternative business lending is expanding rapidly. Our latest Broker Sentiment Survey shows an unprecedented hike in alternative business finance. Alternative finance can deliver funds in a matter of hours, not years, and doesn’t need government support at all. High street lenders are struggling to keep up.”
BBA Lending – summary:
• Gross mortgage lending was £7.6 billion in March
• This puts gross lending down 7% year on year, down 2% month on month
• Net mortgage lending of –£0.3 billion in March, compares with –£0.2 billion in February
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), comments:
“Business owners have every reason to celebrate today’s announcement, but I doubt many aspiring homeowners will be so enthusiastic. The FLS has helped to create some movement in the mortgage market over the last nine months, but its work is far from done.
When the Chancellor first launched the scheme, he set out the aim of ‘making mortgages and loans cheaper and more easily available’ to families aspiring to own their own home. The consistent rate reductions on mortgage products have certainly helped. But so far it has been a select group of borrowers – typically existing homeowners or those with sizeable deposits – who have taken the lion’s share of incentivised funding.
In fact, the average loan to value (LTV) for purchase mortgages in the first quarter of 2013 was actually lower than the same time last year. The Government is playing a risky game with the FLS by favouring business owners over mortgage borrowers, and we can only hope it does not dissuade lenders from pursuing greater volumes.”
Paul Hunt, managing director of Phoebus Software, a specialist in banking technology said:
“The extension of the Funding for Lending Scheme is a source of optimism for banks and building societies, providing a strong foundation for growth in the mortgage market. In the face of a weak economy, lenders have been pro-active in their approach and now the extension of this scheme will further open up the finance markets to a wider range of mortgage borrowers and small businesses. Rates will become increasingly competitive, driving continued strong improvements to lending levels throughout 2013.”
