The Bank of England (BoE) has announced that 13 leading lenders including Barclays, Lloyds Banking Group, Nationwide BS, Santander and RBS Group have signed up to its Funding for Lending Scheme (FLS).
The 13 financial institutions will be offered an initial £60bn of finance under the scheme, which will allow banks and building societies to borrow Treasury bills up to 5% of the amount they currently lend, at a 0.25% interest rate over the next 18 months, a figure that is much lower than commercial rates. This is with the aim that they will pass these savings onto borrowers.
The above lenders, as well as Aldemore, Hinckley & Rugby BS, Ipswich BS, Kleinwort Benson, Leeds BS, Group, Monmouthshire BS, Principality BS and Virgin Money make up around 73% of UK lending.
Although there are high expectations for the impact that the FLS will have on the lending landscape, Paul Fisher, the BoE’s Executive Director for Markets, argued that it may not lead to an increase in lending at all institutions.
“The scheme is designed so that every firm has the potential to use it to support lending,” he said.
“But what this means is that we cannot expect every bank in the FLS to increase its stock of lending to the real economy over the 18-month period. It is to be expected that some firms still show an overall reduction, even if the FLS is successful.”
However, he added that he was “confident that the FLS will help the supply of credit”.
To act as a benchmark for measuring the scheme’s success, the BoE has released details of all participants’ base stock of loans as of June 30. The outstanding loan total reaches £1.2 trillion for the lenders that have signed up to the FLS. The largest lending figures belonged to Lloyds Banking Group (£443.26bn), RBS Group (£214.8bn), Santander (£189.3bn), Barclays (£181bn) and Nationwide Building Society (£152.2bn).
Funding for Lending: What will it mean?
FLS is expected to be particularly good news for would-be buyers, who may have greater access to mortgage finance as a knock-on effect of the scheme.
The BoE’s Credit Conditions survey has already revealed that the FLS is beginning to have an impact with banks and building societies increasing mortgage lending “significantly” in the three months up to September.
The next three months are also expected to see a “further significant increase” in mortgage offers with FLS.
A recent survey conducted by the Building Societies Association (BSA) revealed that credit conditions had begun to ease for buyers. Less than half (46%) of the 2,000 people questioned argued that they felt that ‘access to mortgage finance’ was a barrier to them getting on to the housing ladder, down from a figure of 59% recorded in September 2011.
Paul Broadhead, Head of Mortgage Policy at the BSA, said:
“Although mortgage availability has undoubtedly reduced since the start of the financial crisis, some lenders such as building societies and other mutuals have actually increased their lending to all types of borrowers, including first-time buyers, over the last year or so.
“In the first seven months of 2012, mutual lending has increased by 39 per cent compared to the same period last year and over the same periods the number of loans made by mutuals at loan to value ratios at or above 85 per cent has increased by 27 per cent. Homebuyers may be surprised to find that a mortgage is within their reach and should talk to a lender or broker before counting themselves out of the housing market.”
Royal Bank of Scotland confirmed that it had already made £1bn of discounted loans, after launching the scheme on 1 August. It also confirmed that it had slashed interest rates by up to 1.7 percentage points.
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