Net lending through FLS rockets as mortgage incentives axed

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 today, 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 Q4 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.

Last week the Bank of England announced 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 Q3 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’s 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.”

Changes in quoted mortgage rates and indicative UK bank funding costs since June 2012:

FLS mortgage rates
Quarterly net FLS drawings (drawings less repayments)
FLS Group Quarterly net FLS T-Bill drawings (drawings less repayments) (£m) Aggregate outstanding FLS drawings as at 30/09/2013 (£m)
  Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
TOTAL 4 360 9 472 2 621 1 118 5 524   23 094
Aldermore 205 270 10   485
Arbuthnot Latham 16   16
Bank of Ireland 250   250
Barclays 1 000 5 000   6 000
Bath Investment & Building Society 2   2
Buckinghamshire Building Society 7 6   13
Cambridge Building Society 5 10 40   55
Clydesdale  
Co-operative 900   900
Coventry Building Society 100 400 850   1 350
Cumberland Building Society 5 10 15   30
Furness Building Society  
Hinckley & Rugby Building Society 5 10   15
Ipswich Building Society 10   10
Julian Hodge Bank 18   18
Kleinwort Benson 11   11
Leeds Building Society 100 100 50   250
Leek United Building Society  
Lloyds Banking Group 1 000 2 000 3 000   6 000
Manchester Building Society  
Mansfield Building Society 3 3 5   11
Market Harborough Building Society  
Marsden Building Society  
Melton Mowbray Building Society 10   10
Metro Bank 29 67 79 19   193
Monmouthshire Building Society 5 10 5   20
National Counties Building Society  
Nationwide Building Society 510 1 500 500   2 510
Newbury Building Society 1 5 14   20
Newcastle Building Society  
Nottingham Building Society 25 80 120   225
Principality Building Society 105 102   207
Progressive Building Society  
RBS Group * 750   750
Santander * 1 000 – 900   100
Shawbrook Bank 50   50
Skipton Building Society 360 50   410
Teachers Building Society 4 5   9
Tesco Bank 600 594   1 194
Virgin Money 510 300 350   1 160
West Bromwich Building Society 30 40   70
Yorkshire Building Society 450 300   750