With a seasonal slump in lending during the last quarter of the 2012, the government has come under pressure to alter the scheme to increase lending to businesses.
This could see funds currently being used in the mortgage arena being diverted to other types of lending.
A senior Liberal Democrat told the Financial Times that both parties in government were looking to extend the scheme but that more needed to be done to help small and medium sized enterprises (SMEs).
“We are pushing for FLS to be extended and there is general agreement between both sides of the coalition,” the source said.
“Can we extend it, can we increase it, can we direct it to SMEs? These are the things on the table.”
The report suggests that no changes will be announced in George Osborne’s Budget next week but that the Chancellor will speak of the importance of lending to small and medium sized businesses.
Despite criticism of the scheme in the national press, brokers have reported significant improvements in the availability of mortgages since the launch of the scheme last August. Advisers speaking to Mortgage Solutions had branded criticism of the scheme ‘bizarre’.
Last month Bank of England deputy governor Charles Bean told a select committee that the scheme had been working as was intended and that continual tweaks would not be good for the market.
“It is not a scheme which lends itself to continuous tweaking in the same way you might with the base rate or quantitative asset purchases. What the FLS does is supply banks with funding cheaper than they could get in the market.
“We also put in extra incentives to encourage banks to lend more than they otherwise would have done. As far as banks are concerned they want some certainty with regards to the pricing of the scheme, and it wouldn’t be constructive of us to be tweaking the parameters month to month.
“If it was the case that we’d got the calibration of the scheme wrong we would see if we needed to change something. But frankly the way it is working at the moment is pretty much as we expected it to.
“We have seen the effect on funding costs we wanted to see, it has largely passed through to rates being charged, particularly on household residential mortgages.”
