The data shows for each group participating in the FLS the amount borrowed from the Bank and the net quarterly flows of lending to UK households and businesses for the fourth quarter of 2012.
In the quarter ending 31 December 2012, 11 participants made total FLS drawdowns of £9.5bn, taking the total amount drawn under the Scheme to £13.8bn. Net lending by FLS participants over the quarter was -£2.4bn. There are now 39 groups participating in the Scheme, which cover over 80% of the stock of lending to the real economy.
The FLS works by reducing funding costs for banks and building societies, which allows them to reduce the price of new loans and increase their net lending relative to previous plans. Funding costs have fallen significantly since the announcement of the FLS and there are indications of an improvement in credit conditions, with loan rates falling. But it will take time for this to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process.
The data published today show a continuation in 2012 Q4 of the trend of broadly flat lending growth. The fourth quarter is typically a weak quarter for lending – for example, whereas aggregate net lending (including by non-FLS participants) according to the FLS definition was -£2.7bn in 2012 Q4, it was +£3.1bn in January 2013.3 The improvement in credit conditions is expected to feed through to a gradual pick up in net lending over the course of 2013.
Paul Fisher, Executive Director for Markets at the Bank of England, said in a recent speech:
"The FLS has clearly shifted the supply of credit: loans are generally available at lower cost than previously. Even though lending rates have fallen, it is still quite early for much extra money to have flowed from the application stage into actual loans, compared with previous plans which showed that lending was most likely to fall in aggregate without the FLS. I would not expect to see a return to rising aggregate quantities until we start getting data for 2013 at the earliest. Nevertheless, it does seem that we have the beginnings of a revival in mortgage activity which is visible in the approvals data and that trend is widely supported by business contacts throughout the country."
Christopher Shaw, CEO of the alternative finance provider Platform Black, commented:
"These "warts and all" figures make a mockery of most of the big banks' claims about being willing to lend. Total net lending by banks and building societies taking part in the scheme - which includes all major British lenders apart from HSBC - is now down by £1.5bn since June 30.
"And behind these figures there is a growing split in the sorts of loans being offered. The FLS's aim is to boost lending to both households and businesses. But for the banks it's clearly still a case of all borrowers being equal, but some being more equal than others. Somehow the banks' lending criteria have morphed into "mortgage lending good, business lending bad".
"So while mortgage lending is improving, on the business front line things are going from bad to worse. Despite their greater access to funds, the high street banks' risk aversion has become endemic, and most won't consider lending to a business without significant assets and security. In many cases, even when companies are offered a loan, the terms can be so prohibitive that they are just not practical.
"This is inhibiting business growth and limiting the wider economy's ability to recover. The Funding for Lending scheme is a fine idea in principle - but for now it is little more than that. The banks' continued unwillingness - or inability - to lend to businesses has led ever more companies to seek funds from alternative finance providers. The banks still have a vital role to play oiling the wheels of British business, but their monopoly on lending is gone for good."
Simon Crone, Vice-President Commercial – Mortgage Insurance Europe at Genworth, commented:
“While it is encouraging that the latest Funding for Lending update published by the Bank of England shows that there are now 39 institutions taking part and that the £9.5bn drawn down in Q4 2012 takes the total amount to £13.8bn, it is also sobering to again hear the admission that it will take time for the initiative to feed through to lending volumes and that it has yet to properly influence broadly flat lending growth. We may have the “beginnings of a revival in mortgage activity” as the Bank claims, but until lenders start changing their attitudes to first-time buyers – and embracing all the options open to them such as the utilisation of mortgage insurance – then we are unlikely to see a notable uptick in new borrower numbers.”
Chris Love, director, independent mortgage broker, Mortgage Simplicity, said:
"The data has been skewed somewhat by the activities of a few of the larger banks slamming on the lending brakes to bolster their capital bases. Look beyond this and there's no doubt the Funding for Lending Scheme has improved confidence in the market. There are now many more mortgage products than there were a year ago and those products are often a lot cheaper.
"Crucially, the Funding for Lending Scheme is helping more first-time buyers get a foot on the property ladder, although lenders' stringent criteria are still excluding borrowers who have a less than perfect credit or income profile.
"With a large number of lenders having tapped into the Funding for Lending Scheme, there has been a noticeable increase in the availability of higher loan-to-value mortgages.
"This, coupled with stable house prices, has meant many first time buyers are finally finding it easier to purchase their first home.
"A year ago, getting onto the property ladder was Mission Impossible for most first time buyers. Nowadays, they have a much better chance of making the first rung.
"The Funding for Lending Scheme has helped boost the sale of new homes through schemes such as NewBuy and shared equity products. As a result, many of the larger builders are reporting good sales and profit figures.
"With a potential £80 Billion of new funds set aside for this scheme, which are available at an extremely low cost to the banks, it makes good business sense for them to increase their loan books."
Lea Karasavvas, managing director, Prolific Mortgage Finance, said:
"From a mortgage perspective, few brokers will deny that the Funding for Lending Scheme is firing on all cylinders. The mortgage market's SOS has been answered by the FLS. Not only have rates improved considerably across the board but the underwriting requirements of lenders have also relaxed slightly. They're still tough but are no longer obscene.
"The demand for mortgages is the highest it has been since the first half of 2007. Only recently we hired four new business writers to cope with the demand. Most brokers I know are significantly busier than they were prior to the launch of the Funding for Lending Scheme. While it started by improving rates at lower loan-to-values, first time buyers are also now benefiting from the Funding for Lending Scheme. 90% loan-to-value rates are now 2% lower than they were this time last year and some lenders have even abolished their fees.
"Competition at higher loan-to-values is increasingly strong, with Virgin Money, Nationwide, Accord and Abbey all reducing their 90% ranges recently. Long-term rates are at historic lows, with 5-year money under 3%. Rates, quite simply, have never been better.
With the return of the first time buyer, the property market is also beginning to pick up. Chains are returning, creating more demand for property and giving vendors a confidence to market their properties once again."
Emmanouil Schizas, ACCA Senior Economic Analyst said:
“One of our concerns is the effect of the FLS on competition – so far, FLS doesn’t appear to be helping challenger banks win market share. The top 5 lenders have accounted for 92% of FLS drawings so far, against 87% of baseline loans. Even so, we welcome the Bank of England publishing figures on individual banks. For many SME owners and managers, and even many in the financial press, the BoE’s report on in FLS will be the first time they get to see who the challengers are.”
“The timing of these figures is unfortunate for the Bank of England – on the one hand, they can’t compare like for like because the scheme hasn’t been working for long enough. On the other hand, small business borrowing is seasonal and the fourth quarter is not a busy time for SME lenders. The SME Finance Monitor, the definitive account of UK SMEs’ access to finance, is set to report on 7 March and stakeholders would do well to wait for those figures so that they can put FLS into its proper context.’
“Early reports on the effectiveness of FLS have strongly suggested that most of the Bank of England’s funds have gone into real estate – and we too are concerned this might be the case, but the evidence isn’t solid enough yet. The Bank of England needs to address these concerns by getting the banks to report more detailed figures on what part of the ‘real economy’ they are lending to. Even then, it’s important to remember that a lot of business lending is done using property as collateral and will show up as mortgages. Until we’ve got a few quarters of FLS figures to work with and a fuller breakdown of the figures, we’ll need to cross-reference what the Bank of England publishes with other sources (such as the SME Finance Monitor) to get the big picture.’
“The limited and anecdotal evidence we’ve seen so far suggests that awareness of Funding For Lending is growing quickly, and could therefore reduce levels of discouraged demand among SMEs.”
