There are now 35 groups taking part in the Bank of England’s Funding for Lending Scheme, it has been announced today (Monday 03 December).

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,’ he added.

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 BSA.

‘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.