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FLS falters as Bank of England figures show fall in net lending

The Government’s Funding for Lending scheme is seemingly faltering after figures published today by the Bank of England show net lending has fallen since the scheme’s launch in August.

The figures show participating lenders have drawn down £13.8bn from the scheme since August, £9.5bn of which occurred in the fourth quarter of 2012. However, net lending was -£2.4bn in the fourth quarter, despite the number of participants rising from 35 to 39 over the same period.

The scheme was designed to provide lenders with cheap funds as long as they maintain or increase their net lending. However, since the scheme’s launch, net lending has been -£1.5bn, as at the end of December.

Figures from the Bank of England show net lending by FLS participants rose £0.9bn over the two months following the launch of the scheme but this gain has been completely wiped out by an overall contraction in lending of £1.5bn.

Overall UK net lending, including that of non-FLS participants, was down by £2.7bn in the fourth quarter. The Bank of England says this total rose by £3.1bn in January 2013 but declined to specify how much of this was accounted for by FLS participants.

Capital Economics UK economist Martin Beck says: “There is still this issue of whether the demand for loans is still there. It is all very well to make it cheaper for households to borrow money but if they do not want to then the FLS is unlikely to have the impact the Bank is hoping for. We are in an economy where households are heavily indebted and looking to reduce this burden. Firms are equally reluctant to borrow because consumer demand is so weak.

“You might expect the state-owned banks to be doing a bit more to stimulate lending. The figures for RBS are particularly disappointing given you would expect them to feel more compulsion to do more since they are partly owned by the Government.”

Net cumulative lending at Royal Bank of Scotland has decreased by £2.3bn while it has drawn down £0.8bn.

Since the scheme was launched in August, Barclays, Virgin Money and Nationwide have recorded the highest levels of cumulative net lending.

Barclays has loaned £5.7bn and drawn down £6bn, Nationwide has loaned £3.6bn and drawn down £2bn and Virgin Money has loaned £1.1bn and drawn down £0.5bn. Barclays has drawn down the most of any participant.

Santander and Lloyds Banking Group recorded a fall in net lending of £6.3bn and £5.6bn over the same period of time despite drawing down £1bn and £3bn, respectively.

Bank of England director for the markets Paul Fishers says: “The FLS has clearly shifted the supply of credit: loans are generally available at lower cost than previously. Even though lending rates have fallen, it is still quite early for much extra money to have flowed from the application stage into actual loans, compared with previous plans which showed that lending was most likely to fall in aggregate without the FLS.

“I would not expect to see a return to rising aggregate quantities until we start getting data for 2013 at the earliest. Nevertheless, it does seem that we have the beginnings of a revival in mortgage activity which is visible in the approvals data and that trend is widely supported by business contacts throughout the country.”

The table below shows how much participating lenders have drawn down and their net lending levels since August:

Funding for Lending table Q4



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  • GHU 7th March 2013 at 12:11 pm

    Has anyone studied the ‘joke’ table above and noticed just how few lenders have actually drawn down funds. Perhaps the BoE should look at the phenominally beaurocratic procedures a lender has to go through before funds are allocated. I know of one ldner that has had one of its IT staff almost full time for the last four months trying to set up the reports that BoE want. It is a joke

  • Arron Bardoe 4th March 2013 at 3:54 pm

    FLS should not be for residential loans.

    It should have been directed at commercial lending and only where a lender can show an increase in lending.

    Much of the residential money seems to have gone to lenders sinply offering cheaper remortgage deals for prime business – eg less than 60% LTV.

    All commercial lenders have tightened their criteria with many cases now unable to pass credit. For example, Natwest will lend only around 2.5x EBITDA where this needs to be nearer 5-6 times.

    We need these banks to be encouraged to lend more and so help UK businesses grow. Jobs and housing confidence will then follow.

    Building houses does not stimulate growth, it is a reaction to it.

  • Tim Lynch 4th March 2013 at 2:12 pm

    How do Lloyds Banking group take £3.0bn from FLS yet have negative net lending of £5.6bn in the same quarter? I thought they could only draw on the FLS if net lending is positive! They have a lot of catching up to do to turn that round so should be good news for brokers if they become more aggressive in terms of pricing and criteria.

  • Harry Moore 4th March 2013 at 1:11 pm

    so what are the banks doing with the money?

  • AA 4th March 2013 at 12:26 pm

    Nevertheless, first time buyer activity is up and for remortgages.

    It would be great if the majority offered 95% mortgages.

    Hopefully soon.