With the publication of the latest Funding for Lending Scheme figures I have been looking back on my comments from a year ago on the scheme, written not long after the scheme’s launch in July 2012, and also the market more generally.
FLS, which allows lenders to access lower-cost funding from the Bank of England, was introduced to boost lending both to households and to businesses by keeping interest rates low and improving access to credit.
My key messages at that point were:
That certainty of access to funding was important to increase the confidence of lenders as a whole to lend, and
That lender confidence needed to be supplemented with a focus on building consumer confidence.
This is what I wrote.
”So how then do we seek to further open access and increase activity in the market? It is clear that the Funding for Lending Scheme is an important first step. It creates the certainty that the market has capacity to support and grow lending levels – new lending need not be at the expense of existing markets. With funding concerns eased in the medium term, there can be a greater focus away from lending solutions and towards a wider message that lenders are open for business. This must be in ways that consumers understand.”
The impact of FLS has been more than an increase in confidence to lend. It has also acted to bring about a significant fall in the costs of funding and hence the costs of lending. While mortgage rates for many were already at historic lows, these have clearly supported a further increase in borrowing appetite.
The second part of the strategy was the “open for business” message. This messaging has increasingly been used directly and indirectly by lenders and others in seeking to wipe away the message that the market was only for the few. One year ago my plan looked like this:
Firstly fill in the gaps in the NewBuy scheme and keep working with builders to expand its take up. More builders, more lenders and more options to use – eg part exchange. Secondly look to all active mainstream lenders to provide 95 per cent loan to value products for good quality first time buyers and to their good quality existing customers. Deliver both of these and we have a simple message that the market is open for business again.
As we have now seen, a solution has been delivered Help to Buy involving a greater degree of government intervention than envisaged at that time.
The combination of lower pricing, and stronger messaging does appear to be flowing through into an increased borrower desire to transact. Activity is up, particularly from first-time buyers, and there is growing momentum and confidence in the market.
There is of course a long way still to go. Since the downturn an estimated 800,000 first-time buyers have not entered the market and around 1.3m home moves have not taken place. The intervention will continue into the medium term, but the market will and should return to a more self-sustaining basis.