According to a report in the Financial Times, chancellor George Osborne and the Liberal Democrats want to see the scheme extended beyond 2013 and to favour business lending over mortgage lending. In January, the Treasury select committee hit out at the Funding for Lending scheme for a “bias” towards mortgages rather than business lending, raising concerns that business were not benefitting from the scheme.
The scheme was designed to provide lenders with cheap funds as long as they maintain or increase their net lending. However, figures released by the Bank of England last week show a net lending deficit of £2.4bn in the fourth quarter of 2012 and a deficit of £1.5bn since the scheme’s launch in August.
Deputy prime minister Nick Clegg reportedly wants the programme to be “put on steroids” following the slump in lending announced by the BoE last week.
A senior Lib Dem told the FT: “We are pushing for the FLS to be extended and there is a general agreement between both sides of the coalition. Can we extend it, can we increase it, can we direct it to SMEs? These are the things on the table.”
Bankers believe the Government may listen to calls from Labour to split the scheme into two tranches – one for mortgage lending and one for SME lending – so a bank with plans to shrink its mortgage book could qualify for cheap funds as long as its SME book was growing.
Moreover, Mortgage Strategy reported last month that the Treasury is holding talks with lenders and mortgage trade bodies to explore how mortgage indemnity guarantees can be used to improve access to 95 per cent loan-to-value mortgages, including offering Migs on older properties. Sources close to the talks told Mortgage Strategy the chancellor could make an announcement in the upcoming Budget.