Bank lending continues to fall despite FLS
Net lending by all 40 providers using the Government’s Funding for Lending Scheme (FLS) reduced by £300m in the first three months of 2013 and has now fallen by £1.8bn since the scheme’s launch in August 2012.
The Government scheme was designed to boost lending.
Figures show that 40 lenders have now taken part in the scheme since its launch to the market last year. Of the participants, 27 increased their lending in the first quarter of 2013 but this masks large falls in net lending by some of the UK’s biggest banks.
Santander has reigned in lending by £8.6bn since August while Lloyds Banking Group’s net lending fell £6.6bn in the same period.
Royal Bank of Scotland, Clydesdale and Co-operative Bank also posted a major fall.
Nationwide Building Society and Barclays were the two lenders which saw the biggest increase in net lending, both growing by over £1bn in the first quarter of the year. Barclays has also launched its lowest ever 10-year fixed rate product using funds from the programme.
“The Funding for Lending Scheme (FLS) has helped intensify competition in the mortgage market, which has significantly reduced the cost to consumers,” the bank said.
“Barclays continues to see strong growth in our mortgage lending and throughout the first quarter of 2013 we have assisted homeowners and homemovers with some of our lowest ever rates. Today we are announcing the launch of our lowest ever 10-year fixed rate as we continue to pass on the benefits of FLS giving borrowers access to even better deals.”
Since the launch of the scheme Barclays has used £6.8bn of funds from the scheme. Nationwide is the second biggest player with a drawdown of £4.8bn with Virgin Money, Coventry Building Society and Tesco Bank also in the top five.
Stephen Smith, director of housing and external affairs at Legal & General Network, said that the scheme continued to provide a boost to the mortgage market.
“Undeniably the Funding for Lending Scheme has had a positive impact on the supply of mortgage finance since its introduction in the summer of 2012.
“We have seen it support what were tentative signs of market recovery at that time and it has continued to underpin the relative resurgence we have seen more recently.”
However, criticism of the scheme remains and Simon Crone, vice-president of mortgage insurance at Genworth, said that borrowers were still struggling to obtain finance.
“This update shows that, despite all the protestations to the contrary, lending is still flatlining and lenders – predominantly the banks – remain reluctant to increase their activity and it is borrowers, and first-time buyers in particular, who will continue to suffer.”
Louise Beaumont, co-founder of the business finance provider Platform Black, added: “The Funding for Lending Scheme has lost its fizz. The initial surge in lending has petered out as the banks return to form.
“Despite all their protestations to the contrary, many are using the cheap money offered by the scheme to shore up their loan books rather than lending it out.”