Bob's Blog

Funding for Lending is hotting up

01 Nov 2012

As I’ve commented previously, the Funding for Lending Scheme won’t provide the competitive spark the mortgage market has been crying out for overnight, but the latest update on the initiative provides real encouragement.

The number of participants more than doubled in October, meaning that 30 lenders are now taking advantage of the subsidised funding on offer.

Most interestingly, the majority of the new intake are building societies which shows the Government is making good on its promise to enlist smaller lenders alongside the old banking guard and – given the fact that mutuals have displayed more appetite to lend of late not to mention a more personalised approach to underwriting – may mean the cogs of competition are more likely to start turning.

Given the geographical loyalty that many borrowers have towards their local building society, this latest development may provide the stimulant needed to get things moving again in different areas of the country.

In addition to Nationwide and the mutuals from Hinckley & Rugby, Ipswich, Leeds, Monmouthshire, and the Principality who were already on board, October’s enlistees include building societies from Cambridge, Coventry, Cumberland, Manchester, Mansfield, Market Harborough, Newbury, Newcastle, Nottingham, Skipton and West Bromwich.

It will be interesting to note if housing activity is positively affected in the above areas. It can’t be mere coincidence that all of these building societies have come on board at once, so hopefully the scheme will heed the calls from the likes of Precise Mortgages and widen its remit to include non-banks which will represent a fully inclusive spread of mortgage lenders.

Of course, while the increase in scheme participants is good news, it only becomes great news if lenders utilise the new funding as intended and regain their appetite to lend.

It doesn’t appear that a great deal of the Treasury bills lent thus far are finding their way to the borrowers who need it most, so hopefully the swelling of the ranks will encourage lenders to do more new business.

It may still be some time before we witness a noticeable impact on volumes, but it would be heartening if there was a knock-on effect on pricing in the not too distant future.

Many lenders are still preoccupied with satisfying ever more demanding capital requirements, so there may be an uptick once houses are sufficiently in order.

Brokers themselves can feel buoyed by the latest FLS dispatch as the lion’s share of the scheme’s participants offer products through intermediaries, so they don’t have to feel left out in the cold which has all too often been the case with some other State-backed initiatives.

There is nothing to suggest that lenders will look to divert the new funding lines through other channels at the expense of intermediary distribution, so advisers can remain hopeful that they will be able to share in any boost to the market that eventually results from the scheme.

It may seem that we have been waiting for FLS to kick in to life for a while now, but conservative estimates always stated that the real benefits wouldn’t become apparent until 2013.

With January a little under two months away now and the number of scheme participants continuing to increase, there is every chance the mortgage market could experience a much-needed happy new year indeed.

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