The government’s decision to end the supply of cheap Bank of England financing to support lenders’ mortgage issuance could drive up mortgate rates in 2014, the head of mortgage policy at the Building Societies Association has warned.
In a statement contained within the trade body’s latest statistical release on October mortgage lending by members, Paul Broadhead stated that the end of the scheme will likely not affect mortgage availability.
Mr Broadhead said building societies are not “addicted” to the Funding for Lending Scheme and that it was unlikely the change in isolation would have a significant impact on the availability of mortgage finance, but he hinted it could “have some effect on interest rates” next year
Yesterday (28 November), the Bank of England and HM Treasury revealed that banks will no longer be able to use the Funding for Lending Scheme to underpin mortgage issuance from January 2014.
The two bodies said the growth in household loan volumes, which have recently hit a five-year peak, justifies their decision. FLS will instead be re-focused on lending to small and medium-sized businesses.
According to official data published in September, banks have drawn down £18bn worth of cheap financing from the scheme. Despite this, net lending by scheme members was more than £2bn down overall at that time.
The government cited the Help to Buy scheme, which enters its second phase in January 2014, as continuing to support the mortgage market.
Since the launch of the first phase that offers equity loans to buyers with modest deposits, mortgage issuance has risen sharply and this, coupled with a continuing under-supply of housing, has stoked fears of a ‘bubble’ that could price low-income prospective buyers out of the market.
Figures published by the BSA showed a further increase in net lending by building societies and other mutuals outstripping that of other lenders. The statistics show members delivered net lending of £1.4bn in October compared with net lending by all other lenders of £0.7bn.
Mr Broadhead also cautioned against excessive intervention in the mortgage market by the Bank of England’s macroprudential regulator, the Financial Policy Committee, highlighting “inappropriate” policy levers such as loan-to-value nor loan-to-income limits.
He said: “The Bank of England’s remarks that housing transactions remain low relative to historic levels and that underwriting standards have improved since the crisis provides helpful context to the current environment.
“It is clearly necessary for the Bank to have a range of tools in its kit to manage financial stability.
“However, we believe that neither loan-to-value nor loan-to-income limits are appropriate. The deployment of such direct consumer related macro-prudential tools would be a fine judgment call with caution and pre-consultation called for.”
Additional reporting by Ashley Wassall
