Funding For Lending Scheme `Not Yet Working`, Says Mortgage Expert !!

Date Published 24 August 2012



Major concerns about the Funding for Lending scheme have surfaced amid new data showing that mortgage approvals are lagging well behind those of last year.

Clare Francis, of MoneySupermarket, said there was no sign yet of Funding for Lending helping the ‘beleaguered mortgage market’, while the Association of Mortgage Intermediaries said the scheme threatened to distort the market because it wasn’t being made available to smaller lenders.

The British Bankers Association reported that a monthly increase in the number of mortgage approvals was more than expected in July, but the figure was still 17% below that of July last year.

Altogether, says the BBA, there were 28,441 house purchase loan approvals, up from 25,940 in June. The figure was above the consensus forecast of 27,250, but down from 34,125 in July 2011.

Remortgage approvals stood at 15,600, up from 14,033 on a monthly basis, but down from the 26,272 of a year ago.

The latest BBA data showed that gross mortgage lending of £7.1bn in July was below the recent monthly average, reflecting continued low levels of activity in the housing market.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: `It is no surprise that these figures are not stronger.

`The combination of increased capital requirements and conduct of business controls impacting on lenders generally will mean that mortgages will continue to be in short supply. As such, the industry will not be able to satisfy the housing aspirations of all, and a material level of growth going forward will continue to be a challenge.

`This is not a complaint – it’s just a fact of life in an environment where the demand for safer banks and safe lending to consumers is prioritised to the degree that it is.

`The new Funding for Lending scheme may have an impact on gross lending, but the benefit is most likely to be directed at lower-risk lending which therefore has the potential to distort markets further.

`IMLA has serious reservations about the manner in which Funding for Lending is not being made available to smaller banks and building societies and specialist lenders.

`Aside from being anti-competitive, it means that these facilities are not available to those businesses that have a strong track record of innovation. Many of these have also been well managed through the financial crisis and have not required a subsidy from public funds to keep them afloat.`

Clare Francis, of MoneySupermarket, said: `Our analysis shows the continuing difficulty facing first-time buyers and those with smaller deposits looking to find a suitable mortgage.

`Despite the launch of the Funding for Lending Scheme which was designed to encourage further mortgage lending by the banks, there appears to be few signs that the initiative is helping those with small deposits.

`It is still early days and we won’t see any data on the impact of the initiative until the end of the year, but so far there is little to indicate that the scheme will kick start the beleaguered mortgage market.`

Nick Hopkinson, director of property firm PPR Estates, said he was concerned about borrowing rates drifting up.

He said: `Bank lending for mortgages remains effectively closed to everyone who really needs it. Huge deposits and perfect credit histories remain essential ingredients for anyone brave enough to be buying a house with a mortgage at the moment.

`Also, the announcement that one of the biggest high-street lenders [Santander] is increasing its mortgage costs to existing borrowers will be a further blow to many struggling home owners.

`This is an ominous sign, indicating that real borrowing costs have disconnected from the Bank of England base rate and are moving towards 5%-plus in the near future for most mortgages.`