The mortgage element of the Bank of England scheme will be withdrawn at the end of the year with some fearing removing this source of cheap funding will cause mortgage rates to rise.
However Andrew McPhillips, economist at Yorkshire Building Society, said other sources of funding were now cheaper and the FLS mortgage removal will not have a major impact on rates.
“There is likely to be very little impact,” he said. “Other wholesale sources of funding are also cheaper than they were prior to FLS. Rates are therefore unlikely to change to any significant degree.
“While there may be a small upward trend in mortgage rates over the longer term this is unlikely to be significant. It is likely rates will remain low for at least the next couple of years given the availability of relatively low cost wholesale funding.”
Bernard Clarke of the Council of Mortgage Lenders told Mortgage Solutions borrowers were unlikely to see any difference in terms of products after the withdrawal.
“Some commentators have speculated that it could lead to upward pressure on rates. In many ways retail deposits and wholesale markets are strong and lenders have been less reliant on Funding for Lending than when it was introduced.
“If there is any upward pressure it may only partially offset the drift downwards we have seen since the introduction of Funding for Lending.
“Any change is going to be gentle and will have no immediate effect on borrowers. It has to work its way through institutions first.”
Paul Broadhead, head of mortgage policy for the BSA, wrote in a blog for Mortgage Solutions yesterday building societies were well placed to avoid any lending slowdown.
“Mutuals are not reliant on the Funding for Lending Scheme but a number have quite sensibly taken the opportunity to diversify their funding lines and utilise the attractive terms available through the scheme.”
He said lending volumes would remain strong after Funding for Lending ends: “The supply of wholesale funding has increased since the introduction of the FLS and mutual lenders have seen strong inflows of retail deposits this year. The removal of this stimulus is unlikely to have a significant impact on the availability of mortgage finance.”
This was repeated by Clarke, who said the scheme had served its purpose.
“Looking at the drawdowns, some firms made more use of the scheme than others and different lenders have different lending strategies,” he said.
“The scheme doesn’t appear to have been pivotal in recent times but it was certainly helpful in the early stages.”
McPhillips said he was confident both the mortgage and housing markets would not be affected by the withdrawal.
“It is doubtful the changes to FLS will cause a slowdown in lending. The changes reflect the fact that the housing and mortgage markets have recovered sufficiently to no longer require as much support. Housing transactions will continue to increase next year and as such increase the demand for mortgages.
“The pickup in the mortgage market is unlikely to be solely down to the FLS but it certainly had the effect of lowering rates and improving confidence in the housing and mortgage markets.”
