Mortgage market update, Funding for Lending one year on

The UK housing market is looking buoyant again. Lending levels continue to rise and there are a whole range of new and affordable products coming to market. This good news flies in the face of any market commentators who had made gloomy predictions about housing market recovery last year. Stories of negative growth, a generation of renting and even talk of a triple dip recession dominated our national headlines just over a year ago.

The Bank of England were all too aware of this ailing consumer confidence, with lower lending levels preventing many people from taking that all important step onto the housing ladder. In order to address this growing issue, the now ex-Chairman of the Bank of England, Sir Mervyn King, introduced the Funding for Lending Scheme (FLS).

FLS was designed to incentivise banks and building societies to boost their lending within the UK, by enabling them to borrow money at lower than market rates for up to four years. This was something the Bank of England then hoped to see transferred onto consumers through an increased availability in mortgages and other loan products. With FLS turning one this month, now seems the most suitable time to look at its performance over the course of the last year.

Halifax housing economist Martin Ellis announced earlier this month that house prices nationwide are up 3.7% on average compared to this time last year, citing FLS directly as a contributory factor. As a mortgage broker I also see the effects of FLS as being extremely positive. Business here at Springtide has improved significantly, with a far greater variety of products aimed at everyone from experienced investors to first time buyers.

However, the positive effect of FLS’ has been most apparent amid the smaller lenders who have notably increased their lending, for example Hanley Economic Building Society has increased its gross lending by 14% and lending to first-time buyers by 17% in the last year. The same cannot be said of some of the bigger high street banks, who continue to maintain their ‘computer says no’ approach to lending.

Whilst FLS has demonstrated its effectiveness in boosting housing market recovery this year, the scheme’s true potential is yet to be realised. If larger lenders would adopt a more flexible, personalised approach to lending criteria then the impact of the scheme would be truly felt across the whole market.