Ray Boulger, senior technical manager at John Charcol, said the scheme, which the Chancellor announced in his annual Mansion House address at the City of London last night, could push up gross mortgage lending up beyond the slight drop predicted on last year’s figures.
According to the CML, gross mortgage lending over the whole of 2011 was an estimated £139.9bn.
Boulger said: “I think that although the impact of the scheme won’t affect the market until Q4, as there is still some time before the money becomes available and there is also a few months timelag from application to completion stage, I think one can expect to see Q4 at least with lending increased on last year as a result of this.
“We saw quite a significant upturn in Q1 lending this year, compared to Q1 last year but that is now beginning to tail off, and the expectation was that there would be a reduction in lending in Q3 and Q4.”
“Gross lending for the year, I suspect now, could end up quite close to last year’s £140bn.”
The Chancellor unveiled two stimulus plans yesterday; the “funding for lending” scheme, which will cut banks’ funding costs in exchange for lending commitments. Osborne said the new scheme could support up to £80bn of new loans.
Banks will also have access to short-term liquidity support to deal with “exceptional market stresses,” in tranches of at least £5bn a month.
Boulger said he disagreed with comments made in the press today that suggested lenders may not want to take up the money because they don’t want to lend.
He said: “I think that’s rubbish. If they have money, there will be some borrowers that they will be prepared to lend to. Bearing in mind that residential mortgage lending is the least risky type of lending that the banks do, to the extent that they do take up these funds, it seems to me logical that a decent chunk of that could be allocated to the mortgage market.”
The funding for lending scheme will provide funding to banks for an extended period of several years. The rates will be below current market rates, but the Bank of England (BoE) has yet to announce how much this will be by.
“The likely term of the loans is probably going to be 3 to 4 years. That will also help lenders, in so far that the FSA is pressing them to increase the average life of their funding.
“The market was really impacted from February, when Santander pulled in its horns. That’s when we started to see mortgage rates go up.
“However, if you bring more funding into the market, that would suggest to me that there is every reason to see rates for new business come back down a quarter or half per cent. But until we see what the BoE is going to do, it’s difficult to be precise.”