Bank of England extends flagship Funding for Lending Scheme

The decision by the Bank of England to extend its flagship Funding for Lending scheme has been widely welcomed with experts saying that the move will help growth in the mortgage market.

The bank said that the FLS scheme will be extended for a year and be open to non banks and there will be more incentive for lending to small and medium sized businesses.

‘The Funding for Lending Scheme has already reduced the costs of household mortgages and loans for businesses. This innovative extension will now do even more for small and medium sized businesses so that they can play their full part in creating new jobs,’ said the UK’s Chancellor of the Exchequer, George Osborne.

Paul Hunt, managing director of Phoebus Software, a specialist in banking technology said the extension is a source of optimism for banks and building societies, providing a strong foundation for growth in the mortgage market.
 
‘In the face of a weak economy, lenders have been pro-active in their approach and now the extension of this scheme will further open up the finance markets to a wider range of mortgage borrowers and small businesses. Rates will become increasingly competitive, driving continued strong improvements to lending levels throughout 2013,’ he explained.

Matthew Fell, director for competitive markets, at the Confederation of British Industry, welcomed the move. ‘Funding for Lending is already making a difference to the housing market and there are signs that it is starting to lower the cost of finance for business. The additional incentives for banks should accelerate activity in the small business financing market,’ he said.

Paul Smee, the director general of the Council of Mortgage Lenders (CML), also welcomed the decision. ‘Although non-bank lenders cannot access the scheme directly, any banks that lend to them will now be able to include that lending as eligible for inclusion in the FLS. This ought to result indirectly in the benefits of the FLS scheme being passed through to non-bank mortgage lenders,’ he said.

Stephen Sklaroff, director general of the Finance and Leasing Association, said it should help the leasing markets, which already support 750,000 UK small firms and 30% of UK business equipment investment.

‘While it is clear a lot of work will be needed to implement these changes effectively, the extended scheme ought to help UK small businesses,’ he added.
  
British Bankers Association have this morning released their latest data on lending by member banks.  Meanwhile, the Bank of England has announced an extension of the Funding for Lending Scheme.

Duncan Kreeger, director at peer to peer lender West One Loans, said that widening FLS to include non-banks is a step in the right direction but more needs to be done. ‘Funding for Lending is still a subsidy for established lenders. Financial markets need to be more flexible, not more bureaucratic,’ he added.