The news that house sales have risen to their highest level in five years suggests loans are getting easier to come by.
So are banks and other lenders finally loosening up the purse-strings? And how much of that could be due to the government and Bank of England’s Funding for Lending scheme?
Funding for Lending was launched by the chancellor of the exchequer six months ago, and aims to give up to £60bn to banks and building societies.
The deal is that they get to borrow that money cheaply, as long as they lend it on to businesses and individuals.
In theory, that should boost lending, and the economy.
The Halifax, the UK’s largest house lender, believes the benefits are only just beginning to feed through to the mortgage market.
“I suspect Funding for Lending is having an effect, but it’s difficult to quantify,” says the bank’s chief economist Martin Ellis.
“The scheme has only been in place since last summer, but it’s helping to support, and push up, the level of sales.”
The government and the Bank of England should make a more aggressive effort to get lenders to take up funds, and promote the scheme”
Adam Marshall British Chambers of Commerce
Others believe it’s too early to credit the scheme for any increase in lending.
The Building Societies Association (BSA) represents 47 building societies, which between them are lending more than £200bn to homeowners.
“I think the publicity for Funding for Lending at its launch in the summer may have had a small impact on sentiment,” says Paul Broadhead, head of mortgages at the BSA.
“But it was a short window between there and December, the end of the period measured by HMRC. Yes, the scheme will have helped confidence, but the amount of money drawn down will have a bigger impact in the first half of 2013.”
Initial figures certainly seem to show that lenders were slow to take advantage of the scheme’s cheap money.
According to the Bank of England, only £4.4bn was taken up in the first two months, by just six lenders.
In assessing whether Funding for Lending is starting to take effect, the Bank has made a distinction between the amount of money available, and the cost of borrowing it.
Last month, it said the cost of loans was clearly going down.
“Early signs have been encouraging – market funding costs for UK banks have fallen sharply and many loan rates have fallen,” said a Bank spokesperson.
But it also expected the amount of money available to lend would not increase markedly until well into 2013.
“Given the usual lags from credit being offered to loans being made, Funding for Lending is unlikely to materially affect lending volumes until 2013,” the Bank predicted.
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