Lenders' doubts over Funding for Lending scheme

Neon sign saying "loans" The Funding for Lending scheme is aimed at freeing up credit for householders and business

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Lenders have cast doubt on whether a new scheme will increase lending to small businesses, although mortgage applicants may see greater choice.

The availability of credit to firms was flat in the third quarter of the year, the Bank of England's Credit Conditions Survey suggested.

This would remain unchanged by the end of 2012, according to lenders whose views are collated in the survey.

A scheme to try to boost lending and the economy was launched last month.

The Bank of England has said that the Funding for Lending scheme will be judged a success if banks lend more than they would otherwise have done. So some banks' lending may still fall over the 18 months that the scheme is open for.

The latest Bank of England survey suggested the scheme had already started to free up the mortgage market.

The increase in the availability of mortgages hit a five-year high in the third quarter of the year, it found.

However, applications for these home loans were largely restricted to those who could offer a hefty deposit.

Danny Waters, chief executive of loan company Enterprise Finance said: "Unfortunately, the bulk of the loans being made available has been focused on [mortgage borrowers] who are already spoilt for choice.

"Much the same applies to the corporate sector. Company loans can be secured but not by the companies that need them most, namely the start-ups and SMEs that drive the economy."

Boost expected?

The Funding for Lending scheme, run by the Bank of England, is a key factor in the attempt to get the UK economy moving. At the very least it is aimed at stemming the decline in the availability of credit.

Mortgage application form The squeeze on mortgage lending has been partly responsible for the subdued housing market

The scheme is designed to stimulate the economy by making cheaper loans available to firms and individuals. Some 13 institutions have signed up in the early stages, including five of the big six UK banks. The exception is HSBC.

The institutions can borrow the equivalent of up to 5% of their loan books immediately, and more if they meet certain conditions over the next year.

On Tuesday, Paul Fisher, the Bank of England's executive director for markets, said: "I am confident that the FLS [Funding for Lending Scheme] will help the supply of credit.

"Before its introduction, it was more likely than not that the stock of credit would contract further over the next 18 months."

The UK Treasury said the scheme had started well.

"The FLS has got off to a flying start, with 13 banks and building societies already signed up. Combined they can access £60bn of funding in the scheme, and that is just the beginning," a spokesman said.

The Credit Conditions Survey found that the availability of credit to the corporate sector was reported to have remained unchanged for small, medium and large companies in the third quarter of the year.

And lenders said credit was expected to remain unchanged for firms of all sizes in the final three months of the year.

The survey was carried out in the second half of August, directly after the launch of Funding for Lending on 1 August.

Mortgage approvals

The Funding for Lending scheme is not predicted to kick-start the mortgage market on its own, and some brokers have remained guarded about whether it will work.

A lack of consumer confidence means that mortgage lending has been subdued for some time.

Figures released on Tuesday by the British Bankers' Association (BBA) found that mortgage approvals for house purchases were down 13% in August compared with the same month a year earlier.

However, the Bank's survey found that lenders expected the trend of greater availability of mortgages to continue in the final three months of the year.

This access may also be available to those with smaller deposits.

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