Funding for Lending Scheme
04th January 2013

Mortgages are becoming more widely available, in part thanks to the Funding for Lending Scheme (FLS) in a signal that efforts to free up credit appear to be working.  In particular, the availability of secured credit to households rose significantly in the second half of 2012, setting a new high since 2007, the Bank of England’s latest lending report revealed.

A further ‘significant’ increase in lending is expected over the coming three months.

The  survey found that banks and building societies have increased lending to borrowers with smaller deposits, and are planning to increase their maximum loan-to-values which is good news to those trying to get on the property ladder.

The results will reassure policymakers that the FLS, launched in August to boost the flow of credit to households and businesses, is having an impact. Lenders reported that the FLS was helping increase the availability of credit and lower borrowing rates, while increased competition in the sector was also playing a part.

The Bank and Treasury launched the FLS to unclog the flow of credit to households and businesses by offering lenders cheap finance on the condition they pass it on to borrowers. For every £1 of borrowed money lent out, banks are able to access an extra £1 reduced-rate loan from the scheme.

Today’s report showed that lending to businesses is also improving, with the first increase in credit availability for a year.

But conditions remain tough for small firms, with only a slight increase in lending to this sector and demand actually falling from small businesses. Large and medium sized firms appear to be benefiting most from increased lending and cheaper rates, according to the Bank.

The Bank found that some companies ‘might be discouraged from applying for credit because of a belief that lenders have a low appetite for risk’, although demand is expected to increase slightly for small and medium sized firms over the next three months.

Lenders are expected to continue tapping into the FLS this year, with Lloyds Banking Group announcing last month it had drawn down another £2 billion from the scheme, on top of an initial £1 billion.

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