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Lending to remain flat despite New Year drop in rates – S&P

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  • 16/01/2013
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Lending to remain flat despite New Year drop in rates – S&P
Overall lending this year will remain constrained despite current indications of increased loan availability, Standard & Poor’s has suggested.

Following a speech to the British Banker’s Association, financial services ratings associate director Dhruv Roy told Mortgage Solutions that while, thanks to Funding for Lending and other factors, Standard & Poor’s had observed prices for loans had started to fall, it remained cautious about whether net lending would actually increase.

“There are two aspects – the supply of credit and the demand for credit,” he said. “FLS is shifting the supply curve for credit, but to what extent lending actually increases in the economy will depend on the extent consumers actually respond to lower prices. If you don’t want credit, reducing prices isn’t going to do much.”

Lenders continued to maintain tight underwriting standards, he added, while three of the biggest FLS participants – RBS, Lloyds and Santander UK – seemed unlikely to expand their net lending on a massive scale.

However, he stressed he was not debating the value of FLS itself: “Given the deterioration in the credit conditions we are seeing in the economy, governments have an obligation to do everything they can.

“This is just one of the tools addressing a specific problem, which is the high cost of bank funding. It’s not a cure-all.”

Roy also highlighted the impact of low demand for loans from households, strict underwriting criteria and the reluctance of key Funding for Lending participants to significantly expand their loan portfolios.

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