From the end of January 2014, the Bank of England will put an end to the Funding for Lending Scheme, which was introduced in the summer of 2012 and which many people considered to be the ‘crutch’ propping up mortgage lending.
|Scooped by Paul Owen|
Bank of England Pull the Plug on Funding for Lending
This means that from February, banks and building societies will no longer be eligible for cheap funding for any new mortgage lending. Business loans will still be eligible until January 2015
The FLS has no doubt achieved what it was created to do with an obvious effect on mortgage rates, which have fallen by 1 per cent on average. This, though never a primary goal, has made home ownership more affordable and consequently raised demand for finance. Yet more evidence for the success of the scheme can be found when looking at the rise in the number of approvals since its launch.
Looking at the second and third quarters of 2012 there were a total of 38,469 and 35,506 approvals, respectively.
In 2013, these figures jump a respective 20.4 per cent and 37 per cent to 46,334 and 48,647.
Whilst net lending has been relatively poor, gross lending has seen an unprecedented increase with October seeing a 37% rise on the same time in 2012.
These factors have led to a steady increase in house prices in the South, though not all areas have fared equally.
The figures clearly show that whilst some parts of the country are yet to fully recover, the mortgage market is on the up and up, signaling that this is the ideal time to put the FLS to bed before the market overheats.
If the market can maintain this momentum without the support of the scheme as predicted, 2014 should be a strong year for both gross lending and approvals, though we are likely to see an increase in mortgage rates in over the coming months as the Bank weans lenders off cheap central bank funding. However if the growth trend continues, all the signs suggest the mortgage market has recovered enough to stand without the help of its ‘crutch’.
Source: Paul Thomas - Mortgage Strateg