CML: FLS withdrawal is not a threat to mortgage market

In today's News & Views, the Council of Mortgage Lenders has said it believes that its prediction for strong mortgage lending growth won't be affected by the withdrawal of the Funding for Lending Scheme.

Related topics:  Mortgages
Amy Loddington
22nd January 2014
Mortgages

Current conditions in wholesale and retail markets mean that lenders are well placed to weather the withdrawal of the FLS without disruption to funding markets, the CML said, supporting their expectation of robust growth of mortgage lending during 2014.

But, the CML commented, while there are good reasons for lenders to be positive over prospects for funding, there is increasing comment about house prices and mortgages. While the Bank of England said in its recent Financial Stability Report that there was no housing price bubble, it remained concerned about the prospects for further "substantial and rapid increases in house prices and a further build-up in household indebtedness."

The Bank has already tried to slow the momentum of the housing market with its use of forward guidance. Last year, the Bank’s financial policy committee also recommended that firms should raise additional capital and that harsher stress-testing should be applied to lenders in 2014.

Additionally, the Bank has said that the Financial Conduct Authority should require mortgage lenders to act upon any future recommendations from the FPC on appropriate interest rate stress-testing when assessing affordability for individual customers. These regulatory changes – representing a "touch on the brakes" to slow the housing market – must also be seen in the context of the FCA’s mortgage market review, which will require more rigorous assessment of affordability as part of a series of fundamental changes to mortgage lending coming into effect in April.

The CML said:

"We do not believe that the withdrawal of the FLS represents a threat to an adequately-funded mortgage market. Wholesale funding is now much more robust than it was in the years 2008-12, supported by an increasing risk appetite from investors, particularly from those "hunting for yield" in a low interest rate environment. Alongside more buoyant wholesale markets, we continue to have a very strong market for retail deposits.

"So, despite the strong growth in lending that we are anticipating this year, we expect robust retail and recovering wholesale markets to deliver an adequate and sustainable supply of funding. Significantly, however, this is also underpinned by the lessons learned from the financial crisis, which mean that the Bank and other authorities are now much better prepared to intervene decisively and shore up markets in future, if necessary."

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