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MPs slam funding for lending ‘bias’ toward mortgages

Andrew Tyrie 480

The Treasury select committee has hit out at the funding for lending scheme for a “bias” towards mortgages rather than business lending.

In its report into the autumn statement published today, MPs say they are concerned about reports that businesses are not benefiting.

On the back of the scheme the Council of Mortgage Lenders is predicting gross lending of £156bn this year, up from £143bn in 2012.

The TSC report says it is “too soon” to judge the scheme but calls on the Treasury to review its impact and report back to the committee.

It states: “We are concerned, however, by reports that there may be a bias in the effect of the scheme that favours lending for mortgages rather than lending to SMEs.

“The Bank of England and the Treasury should assess whether this is the case and report their findings and any proposed action to the Treasury committee.”

The report also hit out at the autumn statement for acting as a “second Budget” and called for the primacy of the Budget to be restored.

TSC chair Andrew Tyrie says: “The case for two Budgets is weak. An additional one can create uncertainty and carries an economic cost. Only in an emergency would it be likely to carry long-term benefit.

“The primacy of the Budget as the main focus of fiscal and economic policy making should be re-established.”

Tyrie also criticised the “poorly co-ordinated” announcement of the £35bn transfer of interest payments from quantitative easing from the Bank of England to Treasury. Tyrie says the Treasury threatened the independence of the Bank of England by announcing the move.

The report also revealed that incoming Bank of England governor Mark Carney will face the TSC on 7 February about whether monetary policy should target growth rather than inflation. Carney is set to succeed Sir Mervyn King in July.


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

  1. Yes, shockingly, insolvent banks would rather participate in loans that are asset-backed instead of new unproven businesses, incredibly risky during a time of severe economic crisis. Unfortunately, as per usual they’re doing it with our (or perhaps more accurately, our children’s) money. This is why I believe it was not exactly an outstanding choice to bail out financial institutions (see: Iceland, which after letting them fail is now doing rather well).

    Additionally, threatening the BoE’s independence? Come on, the BoE owns more than 30% of all UK gilts in existence, and the state appoints its governor… any notion that the central bank (and not just ours, but any across the world) is independent from its government is clearly wrong.

  2. Re Anon @ 09.03

    Good Lord. No wonder this country is in a mess with attitudes like this. Sure you have to ensure than business lending is robust. That being said every available penny should go to business. It is only business that will produce the wealth that this country and this country’s children will need to get them out of this hole.

    The incredibly stupid UK predilection for lending against property has ensured that our industry sinks. I well remember my old bank manager wanting to know how much the factory building was worth, while completely ignoring (even if he could understand it) the intrinsic worth a profitability of the business. A building is just a pile of bricks, while a business creates jobs, makes money, provides goods and services and sometimes even pays tax!

    In the UK we seem to rely on people getting into debt – with mortgages and as a result of unfettered shopping. Compare this to Germany that actually has a vibrant and competitive industry and whose banks understand and partner business in order to help them grow. The results are plain for everyone to see.

  3. @Harry Katz

    Arguably, whilst it was before my time, a return to the age of a bank manager with 300 or so accounts that they knew personally and went out to inspect the business and kick the tyres is the only way that banks are going to be comfortable to lend agaisnt goodwill, experience and a business plan. The downside of course is less credit overall.

  4. @Harry Katz

    I am 09.03 Anon. Of course, I agree – business lending is required to bring about an economic recovery. My post was not to suggest that their attitude is good or positive for our economy, only a sarcastic observation that it should come as no surprise that such institutions behave as they do. After all, if they lend on mortgages, they’re affecting the everyman. This ensures they remain part of the ‘too big to fail’ group. Additionally, getting the average person into debt has always been their bread and butter – and with all the free money created by central banks, it’s easy to lend even to bad debtors if there is a well-defined asset behind them. Finally, mortgage lending causes house purchases, driving prices to recover. This helps to reflate the bubble in which most of their (pre-crash) assets exist. Like I said, I’m not saying it’s right. Just understandable. Ultimately, I believe it will all topple again because the crucial issue with housing (to me) is the huge divergance of house prices and income. I do not know how this is solved, the options I see are: a convergence – either by large drops in house prices, or large increases in individual incomes. Or, a situtation where the majority of people are rentiers or hugely indebted with enormous multi-generational mortgages (which I believe is how Japan is, with its endless QE since 1990?). Alternatively, you could posit that social unrest becomes significant enough that the systemic issues (what I like to call “insolvency abuse”) are brought out in the open and fixed, and we all live happily ever after.

  5. Well said Harry. The UKs obsession with house prices is our Achilles heel.

    No wonder the banks are keen to lend on assets – they are sitting on enormous piles of asset backed securities so naturally have a vested interest in keeping them at artificially high prices, relying on the greater fool theory to keep the charade going!

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