British Property Award Winner 2017
The Bank published the first data on the use of the scheme to
the end of the third quarter of 2012. It was launched two months ago and is
designed to reduce funding costs for banks and building societies so that they
can reduce the price of new loans and increase their net lending.
Banks and building societies will need to expand their lending
to maximize their benefits from the Scheme. Funding costs have fallen
since the announcement of the FLS, but the Banks said that it will take time
for reduced funding costs to feed through to lending volumes, given the typical
lags involved in the loan application,
approval and drawdown process.
The Bank added that it is therefore too early to use these data as a reliable
indication of the impact of the FLS on lending volumes.
‘I am confident that the FLS will help the supply of credit. The
incentives in the scheme are for banks and building societies to cut lending
rates and hence lend more to
get the cheapest funding,’ said Paul Fisher, executive director for markets at
the Bank of England.
‘Since the scheme was announced we have seen widespread falls in
funding costs across different sources and an equally wide variety of lending
rate reductions. But it is too early to use these data as a reliable indication
of the impact of the FLS on lending volumes,’
The Building Societies Association said that 22 mutual lenders
are part of the scheme. ‘This shows that it is genuinely open to a wide range
of lenders as the BSA requested,’ said Adrian Coles, director general of the
‘However, we agree with Paul Fisher that it is too early to use
these data as a reliable indication of the impact of the FLS on lending
volumes. Many of our members with little or no prior experience of using mortgages as
collateral for funding will have had to undertake more preparation work before
actually drawing under the FLS, and so will not feature in these drawing
figures,’ he pointed out.
‘The design of the scheme means that the funds can be drawn at
any time until the end of 2013, so it is not imperative to draw right at the
start. Mutuals aim to lend sustainably
over the longer term. Nevertheless, we are pleased that two BSA members had
already made initial drawings by the end of September. Even so, it may take
some time for these funds to feed through into any new lending,’ he explained.
"The FLS scheme is
designed to encourage lending to households and businesses, with the price and
volume of funds an institution is able to draw depending on how much it
increases its lending. The data published by the Bank today shows that mutual
lenders increased their stock of suchloans by £2.6
billion in the third quarter, demonstrating that mutuals are playing a key role
in lending to the real economy,’ he added.
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