View more on these topics

Expectations for Funding for Lending “too high”, says CML

The Council of Mortgage Lenders believes expectations about what the Government’s Funding for Lending scheme can deliver are “too high” and it should only be seen as a “stop-gap solution”.

In its fortnightly newsletter, News & Views, the trade body says while the scheme is useful it should not be viewed as a replacement for other forms of funding, like wholesale funding or retail deposits.

The scheme, which is open for the next 18 months, allows eligible institutions to borrow up to 5 per cent of their existing loan books in UK Treasury Bills for a 0.25 per cent fee for a period of up to four years.

The scheme encourages lenders to increase their lending, with a promise of more funds at 0.25 per cent if they do. However, lenders that shrink their loan books will have to pay more for the funds, up to a maximum of 1.5 per cent.

The CML’s newsletter says: “While the new Funding for Lending Scheme, which enables lenders to access cheap funds from the Bank of England at rates that get more attractive the more they increase their net lending, is a useful stopgap, it is already suffering from expectations that are too high about what it can deliver.

“Yes, it is cheap – but institutions can only use it to refinance 5 per cent of their overall balance sheet in the first instance, plus any additional net lending that they undertake. So it is by no means a wholesale substitute for existing funding lines, as some commentators so far seem to be forgetting.”

It adds that firms ultimately “need the wholesale markets to provide the balance of funding for mortgage books”. However, issuance of new mortgage-backed securities has dried up since the financial crisis, as investors shy away from investing in mortgage-backed bonds and originators find it hard to get their issues away.


Hodge Lifetime cuts lifetime mortgage rate by 0.3%

Hodge Lifetime is reducing the rate on its lump sum lifetime mortgage by 0.3 per cent, from 6.13 per cent to 5.83 per cent, tomorrow. The product allows customers to pay off up to 10 per cent of their initial loan each year without incurring early repayment charges. Customers can also repay the loan in […]

Banks and FSA failed to learn from Equitable Life collapse

Banks and the FSA could have acted to prevent the recent financial crisis if they had learned from the collapse of Equitable Life, a report has found. A report, “Did anyone learn anything from the Equitable Life?”, has been published today to mark 250 years since the mutual insurer was first established. King’s College London […]

Dragonfly Property Finance completes bridging loan in four days

Short-term lender Dragonfly Property Finance has completed a £840,000 bridging loan in four days. A limited company, introduced to the lender by brokers Mortgage Centre IFA, secured the loan against a leasehold flat. Dragonfly, which took the loan from enquiry to completion in four days, will be repaid on sale of the flat. Mortgage Centre […]

MS Leader: Kick claims firms harder

It’s been a long time coming but finally last week the Ministry of Justice took steps to give the claims firm industry a much needed kick up the backside.


News and expert analysis straight to your inbox

Sign up