It is regarded as a sign that the government’s Funding for Lending Scheme (FLS) has been successful in boosting lending. The scheme was launched at the start of August 2012 and was designed to encourage lending to households and growing businesses by allowing financial institutions to borrow at low interest rates.
Separate figures from the Building Societies Association show that, over the whole of 2012, mortgage lending by building societies and other mutual lenders grew to a total of £30.7 billion, an increase of 30% increase compared to 2011.
Mutuals also represented a larger share of the overall lending market, taking a 22% market share of total new lending in the year, up from 17% in 2011. In December, total lending by mutuals increased to £2.4 billion from £2.1 billion a year earlier.
Adrian Coles, director general of the Building Societies Association, said that mutual lenders such as building societies are likely to continue to play a prominent role in the mortgage market in 2013 and he pointed out that more than half of the 35 firms that were signed up to the Funding for Lending Scheme in December are mutuals.
According to Paul Hunt, managing director of Phoebus Software, the Funding for Lending scheme is proving to be a strong foundation for growth in the mortgage market and this is now being reflected in lending data across the board.
‘Despite the flat economy and demanding funding conditions, lending to individuals has grown over the second half of 2012, while at the same time the number of loan approvals for house purchase has edged up in December, bringing the year to a healthy close. A raft of cheaper, more attractive deals are launching and I expect continued strong improvements to lending levels throughout 2013,’ he said.
Simon Crone, vice president commercial at mortgage insurance for Europe at Genworth, said that the mutual sector continues to lead the way in terms of its ability to help first time buyers get on the ladder.
‘Given that many building societies are using credit risk mitigants like mortgage insurance with their high LTV loans this is perhaps not surprising. Indeed we are seeing sustained year on year increases in high LTV lending by many societies who recognise the great need amongst first time buyers in particular for a mortgage without a guarantor or Bank of Mum and Dad attached,’ he explained.
‘It is our hope that more lenders can grasp the nettle in this regard, and will look at the benefits to their business that using mortgage insurance can deliver in terms of increasing their high LTV loan levels in the mainstream market and therefore enabling young people to get a foot on the housing ladder,’ he added.
He believes that the jury is still out on Funding for Lending until the next set of data is published in March as it is too early to draw any pattern. ‘Some might say that the increase in purchase lending and approvals could be a sign that the benefits of FLS are now finally filtering into the mortgage marketplace, however, remortgaging levels are still relatively low,’ he said.
‘Considering most of the price competition has been in the 60% LTV remortgage bracket, it is very tricky to pinpoint any noticeable FLS effect. It would certainly be interesting to see whether FLS is translating into greater availability of high LTV mortgages, where borrowers have to put down lower deposits/equity, as this is going to be crucial if we are to see any sustainable increase in first time buyer numbers and if the market is going to make a concerted effort to help second steppers move on,’ he added.
David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, said that funding conditions are still tough but 2013 looks set to be a better year for the mortgage market. 'It may well be the year where the recovery kick starts. The Funding for Lending scheme is helping by bringing down rates for those buyers able to meet lenders’ requirements,' he said.
'Lenders will also be boosted by the easing of the pace at which they have to build their capital buffers, which should free them up to lend to a wider range of borrowers instead of being forced to focus on wealthier borrowers. In order to fundamentally transform the mortgage market, the Government must focus their energy on encouraging first time buyers and increase the numbers of borrowers from the bottom tier of the market who are struggling to save for a deposit. This will give the market a whole new burst of life,' he added.