FLS records its best quarterly net lending figures since its launch 18 months ago

Net lending through the Funding for Lending Scheme in the third quarter reached its largest quarterly total since the scheme launched 18 months ago.

According to figures published by the Bank of England last week, net lending by FLS participants was £5.8bn over the third quarter, compared with £1.6bn in the second quarter. Net lending was negative in the previous two quarters – a negative £2.4bn in the fourth quarter 2012 and -£1.8bn in the first quarter of the year.

Cumulative net lending since June 2012, when the scheme launched, is now £3.6bn.

Aggregate net lending – which includes lending by banks and building societies not participating in the FLS – was £8.7bn for Q3, compared to -£3.6bn in Q2. Of the £8.7bn, £5.1bn was to the household sector while £3.6bn was to businesses.

The figures followed the Bank of England announcement at the end of November that the Funding for Lending scheme would be scrapped for mortgage lending from next year.

The FLS was originally planned to last until January 2015 but last week it was announced there will be no new cheap funding available to banks for mortgage lending come February. Business loans will still be eligible until January 2015.

Since its launch in July 2012, the FLS has been credited for allowing banks to offer some of the lowest mortgage rates ever seen in the UK, with average rates falling by over 1 per cent in certain LTV bands.

Bank of England executive director for markets Paul Fisher says: “An economic recovery has taken hold.  These data show that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending. 

“But credit supply to businesses remains relatively subdued, especially to SMEs. The refocus of the FLS is designed to continue to support the recovery, where it is needed.”

Mortgage Advice Bureau head of lending Brian Murphy says: “Following a record third quarter performance in terms of net lending, the scheme’s departure from the mortgage market in 2014 is likely to mean rates increasing slightly in the next six to twelve months.

“But mortgage seekers are still in a far better position than they were a year ago and lenders will continue to take advantage of other routes to funding. Let us not forget that before FLS was extended, mortgage lenders were already planning without it for 2014.

“The added impetus of Help to Buy should also ensure buyers with small deposits will continue to find competitive rates.”