Market view: BoE scheme welcomed, more flexibility needed

The industry welcomed the newly-launched Funding for Lending scheme, stating it is likely to act as a positive influence on both the flow and the cost of new lending and will support growth in the economy.

However, while positive on the proposals, the Council of Mortgage Lenders pointed out that it is not possible to give a direct estimate of the potential effects in terms of the mortgage market specifically.

The scheme, which will reduce the price at which banks and building societies are able to fund themselves and was launched today (13 July) by the Bank of England and the Treasury, is designed to boost lending to the real economy.

Banks and building societies that increase lending to UK households and businesses will be able to borrow more and do so at lower cost than those that scale back lending.

The scheme does not target specific parts of the market such as mortgages, instead being aimed at all types of lending to non-financial businesses and individuals

Paul Smee, director general of the Council of Mortgage Lenders, pointed out that the scheme is designed to provide an incentive for lenders to increase their lending, as funding under the scheme is significantly cheaper than if they reduce their lending.

However, the CML emphasised that individual lenders will need to assess carefully how well the funding available under the scheme suits their individual funding requirements and lending aspirations.

Mr Smee said: “While it is difficult to say exactly what its impact on the mortgage market may prove to be, the ‘funding for lending’ scheme seems likely to encourage lending in its widest sense and to that extent should be a helpful support to economic growth.

“We will continue to look at the detail to identify any specific impacts for mortgage lenders.”

Brian Murphy, head of lending at leading independent broker Mortgage Advice Bureau, agreed that by making cheap funding available specifically to lend to individuals and business, and by penalising those who fail to lend in the future, it should help to free up more credit.

He said: “Borrowers have been crying out for more mortgage funding, as lenders’ own funding has been more constrained. But while this scheme could mean up to £80bn is available to banks and building societies, we also need to see more flexibility being applied.

“We need to see more good quality borrowers getting access to mortgage funding if the scheme is to have the positive impact the government is hoping for.”

Adrian Coles, director general of the Building Societies Association, added: “ Mutuals have seen strong growth in lending so far in 2012, with gross lending up 40 per cent in the first five months compared to the same period in 2011. In comparison, bank lending was up just 4 per cent.

Mutuals are keen to continue to play their part in supporting homebuyers, and we will be studying the details of the scheme carefully.”