Lending scheme to focus on small firms

Governor of the Bank of England, Mark Carney
Governor of the Bank of England, Mark Carney
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A flagship scheme designed to boost mortgage and business lending will no longer apply to households as a surging property market means it is no longer needed, the Bank of England announced yesterday.

The Funding for Lending (FLS)scheme, which offers cheap finance to banks and building societies to encourage loans, will instead be refocused on stimulating borrowing for small businesses, where it remains muted.

Meanwhile, a temporary easing in the requirements on banks to hold capital as a proportion of loans will no longer apply to household borrowing, Bank governor Mark Carney said.

Mr Carney said it was appropriate to take measures now to ensure the “evolution” of the housing market is as “constructive” as possible.

He said: “Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households.

“The changes announced today will refocus the Funding for Lending scheme 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.”

The scheme was launched in June last year by the Treasury and the Bank of England and has already been revamped once this year to try to help small and medium enterprises (SMEs) – a sector seen as key to the recovery.

FLS will no longer apply to household loans from January though lenders will still be able to draw down finance they have qualified for, until the end of the month.

The changes mean the Bank is no longer providing any stimulus measures for household mortgages.

But they do not affect the Treasury’s Help to Buy scheme, which assists those struggling to build up deposits to buy a home to access loans that can be worth up to 95 per cent of a property’s value.

The Bank announced the changes to FLS in its twice-yearly Financial Stability Report, which noted that house prices had gathered momentum, with surveys showing average prices rose 6.8 per cent in the year to October.