BoE Data Raises Doubts about Funding for Lending Scheme’s Efficacy

on Dec 12, 2012

**BoE’s Data Shows Mixed Results in Regards to Mortgage Lending**

Mortgage rates in the UK started to climb late last year as the Eurozone crisis reignited, but in recent months, they have been falling, apparently helped by Britain’s latest initiative to improve lending to the country’s businesses and households. In August, the Bank of England (BoE) introduced a £80 billion Funding for Lending Scheme (FLS), expected to initially lead to a decline in borrowing costs on new loans before feeding through to higher lending volumes next year. According to the BoE’s latest Quoted Rates survey, some of those hopes have been justified. After the FLS had triggered fierce competition amongst banks for mortgage customers, yesterday’s official data confirmed that interest rates on fixed-rate UK mortgages have fallen sharply. In November, the rates on a range of two-, three- and five-year fixed-rate mortgages were all down compared to the previous month.

Are you looking for signals & alerts from pro-traders? Sign-up to Invezz Signals™ for FREE. Takes 2 mins.

Despite this overall positive data, fresh doubts have been raised about the FLS efficacy, as the latest BoE figures also revealed that banks have lifted the rates on some mortgages, The Times reported on 12 December 2012. The paper remarked that quoted rates on standard variable rates (SVRs) and tracker home loan rates rose in November to their highest levels in at least two and a half years. Indeed, the central bank’s Quoted Rates survey showed that from 3.64 per cent in October, last month, tracker mortgage rates rose to 3.68 per cent — the highest level since 2010. Meanwhile, the average standard variable rates also reached their highest level since early 2009, climbing to 4.33 per cent in November from 4.32 per cent the previous month, yesterday’s data showed.

**Banks Are “Cherry-Picking” Well-Heeled Customers, Analysts Say**
!m[Rates on Some Mortgages Lifted in November, Causing Analysts’ Concerns FLS Fails to Support Poorer Borrowers](/uploads/story/1022/thumbs/pic1_inline.png)According to some analysts, Britain’s banks are “cherry-picking” relatively wealthy borrowers, while poorer customer, and especially those stuck on SVRs, are missing out on the cheaper-lending initiative. Meanwhile, with banks benefiting from the BoE’s FLS lowering the returns they are offering savers on deposit accounts and Individual Saving Accounts (ISAs), analysts further argue the efficacy of the lending programme.

The Times quoted Alan Clarke from Canada-based Scotiabank as saying: “The most attractive borrowing rates are for new borrowers with the biggest deposits. This is the sort of borrowing that lenders want to see. Meanwhile, borrowers who are in negative equity or don’t have much equity are stuck on SVR rates, which are going sideways or up.” Mr Clarke added that the Funding for Lending Scheme is “not as effective as it should be” and that banks should be targeting their existing stock of loans and not just new ones.

**FSA Report Shows New Mortgage Interest Rate Increase**
A separate report from the Financial Services Authority (FSA), covering lending in the third quarter of the year, said that the average interest rate on all new mortgage loans had risen to 3.89 per cent, from 3.78 per cent in the previous three-month period. Meanwhile, fixed-rate deals have declined, reflecting the benefits of FLS on bank funding costs. The FSA data also revealed little evidence that BoE’s scheme has actually boosted mortgage lending, with £40 billion of mortgage loans advanced in the third quarter, down 9 per cent from a year earlier.


Want easy-to-follow crypto, forex & stock trading signals? Make trading simple by copying our team of pro-traders. Consistent results. Sign-up today at Invezz Signals.

Learn more
Real Estate Residential Real Estate