Is this a direct result of the Funding for Lending Scheme, where the Bank of England provides a 5% increase in funds for lending up to £80bn, or are lenders just trying to fulfil 2012 lending quotas?
Examining the issue in this week’s Market Watch are:
Mike Jones, director of intermediaries, Lloyds Banking Group who said the Scheme should not be written off as the early signs are promising.
Andrew Baddeley-Chappell, head of specialist lending & divisional policy & governance at Nationwide who thinks the scheme will get off the ground as soon as borrowers realise the market is ‘open for business.’
Andy Knee, managing director, LMS insists that more measures are still required to rejuvenate the market.
Mike Jones, director of intermediaries, Lloyds Banking Group
The government’s £80bn Funding for Lending scheme (FLS) was introduced to kick-start the economy by providing banks and building societies with access to cheaper funding. The FLS has brought down wholesale rates and encouragingly some lenders have been quick off the mark to take advantage of this cheaper funding; already passing savings on to borrowers.
As it has not led to a spike in mortgage applications, some pessimists have already written off FLS; but we have to be realistic. As with any new initiative, you are not going to see a rush of activity straight away. But the signs are positive that mortgage providers intend to continue lending as we enter into the final few months of the year, and early indications show that an increasing number of lenders are reducing rates.
We know that rates overall in the purchase and remortgage market are becoming more competitive; as Moneyfacts data shows, overall average mortgage rates have fallen by up to 0.56% since FLS was launched. It is early days yet, but the signs are promising.
Andrew Baddeley-Chappell, head of specialist lending & divisional policy & governance at Nationwide
The Funding for Lending Scheme (FLS) is structured in a way that encourages net lending from each participating lender and this will act as a spur to further activity.
Early indications are positive, the scheme has been generally well received and it does appear that the increased competition in the market can be linked to the FLS. The full dynamics are still to play though as it may take some lenders time to gear up to higher volumes, some time for improved pricing to flow through to increased completions, and the ripples may be felt earlier in some markets compared to others.
The big question now is whether increased competition drives increased borrower activity and, importantly for the wider economy, increased house buying and home moving.
Increased price competition clearly impacts choice of lender, however price is not the only barrier limiting borrower activity. Lenders do need to make sure products are available for borrowers in a prudent way. As important, if not more so, is borrower confidence. Borrowers need to believe that the mortgage market is open for business (which it is), and then have the confidence and desire to purchase a home that they want and not just need.
Andy Knee, managing director, LMS
Most qualifying lenders are keen to take advantage of the Funding for Lending Scheme (FLS), but as this money comes with conditions they need to get their ducks in a row before they can access this cash and that takes time. So while the FLS scheme is likely to have an impact in the longer term, I think it is too early to say definitively it has had a positive impact.
The markets are now less volatile, which means the yield curve is falling and lending costs are now generally lower due to the perception that rates will remain stable – or even fall – over the long term. This has had more of an impact recently that the advent of FLS. That said we have seen some organisations change their lending strategies now they can access this additional line of funding and offering intermediary as well as direct products.
However, the fact remains whether lenders use the scheme or not, they need to operate within the parameters set out by the FSA and their own lending policies, so while the FLS can certainly provide a boost – I don’t think that even in the long term it will rejuvenate the market.
