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Second FLS could be on the horizon by the end of 2013

A second Funding for Lending Scheme could be on the card industry at the end of 2013 if the current one is successful, pundits are predicting.

But they say it needs to be aimed at helping prospective buyers with lowers deposits .

The current scheme allow banks to borrow UK Treasury Bills for a period of up to four years against DWF-eligible collateral, for a fee. Participating banks qualify to borrow up to 5 per cent of their stock of existing lending, equating to approximately £80bn across all eligible institutions.

The scheme has been criticised for failing to deliver incentives for lenders to focus on the higher LTV sector, aiding first-time buyers in particular

The Bank of England revealed last week that the number of Funding for Lending Scheme participants has risen to 35 with £4.4bn collectively drawn down by the end of the third quarter. Net lending by FLS participants rose £0.5bn over the two months following the launch of the scheme.

Labour last week attacked the Government for “complacency” over its funding for lending scheme, branding its boost to lending as nothing more than a “flea bite”.

But within the mortgage industry both lenders and brokers have been upbeat about the effect that the FLS is having on new lending.

John Charcol senior technical director Ray Boulger says: “If the FLS proves successful, on the basis the government will want to continue to stimulate the market, there is a reasonable chance we will get a FLS2, just as we have had QE2 and QE3 to follow on from the current scheme and perhaps address some of the issues FLS has been criticised for.

“You could devise a successor that not only looks at whether a lender is expanding lending but the way they are doing so. In order to get the cheaper rate, you need to expand your lending to the higher LTV sectors.”

Boulger says a scheme of this nature is the best means of getting around the capital adequacy rules which causing big differentials in interest rates between the lower and higher LTVs.

He says: “Capital adequacy rules are pushing lenders into charging more for higher LTV mortgages but also charging more for them as they typically need to set aside six times as much capital just to lend 70 per cent.”

Hometrack strategy, Risk and Economics director, Gary Styles says that focussing another FLS at higher LTV borrowing is an interesting idea particularly when considering the first-time buyer issues connected with the availability of finance in terms of a deposit.

However Styles says it can’t be known at this stage how the market will react to the end of the current scheme, presenting a priority issue before a second scheme can be considered.

He says: “When this current scheme comes to an end, there will have to be a repayment of the subsidised funding. Although these are three or four year funding lines, there will have to be put in place arrangements for them to be run off.

“Before we get carried away with another scheme, we need to make sure with have the arrangements in place to deal with the end of the current scheme as well.”


Paul Hunt MS blog

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