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Bank of England's Funding For Lending Scheme Beginning To Have Effect

Bank of England’s Funding For Lending Scheme Beginning To Have Effect

The £80 Billion (GBP) Funding for Lending Scheme (FLS), launched in August by the Bank of England (BoE) and HM Treasury, is starting to show signs of having a positive effect.

The multi Billion pound scheme designed to unclog the flow of credit to the UK’s residential homebuyers is having the desired impact as official figures show an upturn in mortgage approvals.

The Funding for Lending Scheme (FLS) makes money available to banks on the condition they pass it on to businesses and households in the form of cheaper loans and mortgages.

The Bank of England have stated that the number of loans approved for residential property purchases rose by 2,103 to 50,024 in September 2012 and the number of loans approved for re-mortgaging increased by 1,860 to 28,343.

Meanwhile, unsecured consumer credit has also increased by £1.2 Billion (GBP) in September 2012, the sharpest rise since February 2008, including an increase of £307 Million (GBP) in credit card borrowing while the remaining £900 Million (GBP) came from overdrafts and unsecured personal loans.

Borrowers have faced even tougher times trying to take out a mortgage in recent months as lenders tightened their lending criteria even further, causing a drop in the proportion of mortgages approved.

The average interest rate on new mortgages also fell slightly, from 3.84% to 3.77%, offering some hope that the recent rise in borrowing costs may also be starting to ease.

Governor of the Bank of England, Sir Mervyn King, said that “More than 20 banking groups, including the five largest lenders in the UK, have signed up to the Funding for Lending Scheme, while funding costs have fallen by around one percentage point”.

However, Sir Mervyn warned the initiative was temporary and lenders would have to accept further losses if normal banking services are ever to make a return.

The reductions in borrowing rates have primarily been aimed at households taking out mortgages with low Loan-To-Value (LTV) mortgages. So they may not help first-time buyers (FTBs) much.

As mentioned last week, borrowers are still faced with some degree of uncertainty when looking for mortgages or credit as despite all the positive noises made by the BoE and the Government, banks are still fairly reluctant to lend.
Read last week’s top story here.

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