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BoE to scrap Funding for Lending for mortgages from January

The Bank of England Funding for Lending scheme is being scrapped for mortgages from January in a bid to prevent a housing bubble.

The scheme was originally planned to last until January 2015 but mortgage loans will no longer be able to access it from January. It will still apply for business loans until 2015.

The FLS has slashed mortgage rates and boosted lending significantly since its introduction in July 2012.

The Bank of England says credit conditions for smaller businesses have also improved, but to a lesser extent, and overall lending to businesses remains muted.

The Bank says activity in the housing market is picking up, house price inflation appears to be gaining momentum and FLS is not needed for mortgages.

It says there is no impact on Help to Buy which is designed to help borrowers with lower deposits access funding, whereas the aim of the FLS is to boost lending.

The FLS extension will provide continued support for lending to businesses in 2014, with incentives in the scheme skewed heavily towards lending to small and medium-sized enterprises.

The Treasury select committee has criticised the scheme for focusing too heavily on mortgages and not enough on boosting business lending.

Bank of England Governor Mark Carney says: “Over the past year the FLS has contributed to the recovery by helping to significantly improve credit conditions, especially for households. The changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

Chancellor George Osborne says: “The FLS proved to be a successful tool in supporting the recovery. Now the housing market is starting to pick up, it is right  we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That is why we are reforming the banks, introducing the employment allowance and now focusing the FLS to support them”.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Thank goodness for that! This daft idea should have been strangled at birth. (Or at least Boy George should have been for thinking this crazy scheme up in the first place!)

  2. Just in time for Basel III….. That’s joined up thinking for you!
    Interestingly though, it does seem to be borrowing cost that has driven the latest frenzy even though criteria remains tight. Perhaps more work needs to be done to ease criteria and bring lenders back into the Real World or this move could have a dramatic and undesirable effect…..

  3. However, the Help to Buy scheme still remains and whilst that may be a good thing for those looking to buy a property. It is not a good thing in terms of house price inflation.

  4. This seems a very good move from the Bank given the current risks. The evidence from the latest BIS research on the effectiveness of many of the usual macro-prudential tools to stabilise house prices is far from encouraging. See link below to BIS paper below which reviews the experience across 57 countries. …..

  5. Andy Wilson, Lincoln 28th November 2013 at 1:10 pm

    Mortgage lenders may be well equipped to meet funding needs but we are unlikely to see a continuation of the very low interest rates that have been offered over the last 16 months. It really has been a ‘make hay whilst the sun shines’ period and many of my clients will continue to enjoy very low long term fixed rates for a few more years. I have made them all aware of the need to be ready for a payment shock at the end of their deals as Funding for Lending in the residential mortgage market was never going to last forever, but I do think we are approaching last chance saloon for anyone who has not yet tapped in to cheap fixed rate offerings.

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