When the Funding For Lending Scheme was launched there were many who had high hopes that, whilst it was never going to be the panacea to cure all the lending markets ills, finally there was a scheme that seemed to provide enough incentive for banks to actually increase their lending levels once more after years of contraction.
Using the carrot and stick analogy you could say that this was the carrot where Project Merlin, which did not work at all by ordering lenders to lend, was the stick.
The problem was that lenders in general seem to have been reticent in the past to up their lending, as Project Merlin previously proved, preferring to hide behind claims that there was a lack of demand or indeed worthy businesses to lend to.
With this in mind, there was more of a cautiously optimistic welcome rather than an audible cheer and popping of champagne corks.
Although it is still potentially a tad too early to really examine its effectiveness, whilst there are some signs of good cheer, they are accompanied by the same worries that have previously pervaded through the mortgage market.
Initially we had some quick wins. NatWest trumped HSBC’s lowest ever 5 year fix rate with an astonishing 2.95% deal, whilst lenders such as Halifax, Nationwide and Barclays all cut rates across the board.
Santander, who were reportedly previously looking to reduce their lending levels substantially, have made a subsequent and welcome U-turn and are now very much open for business.
With the accompanying falls in SWAP rates and LIBOR, pricing and product wise at least, things look good.
However, both the pricing and the amount of products available are only part of the story. As any decent Mortgage Broker or small business owner repeatedly knocking their head against the bank teller’s window will retort, no one seemed to pass these new lending targets on to the risk departments.
The real issue therefore, is not the pricing of products but the actual appetite to lend and accept anything other than the lowest risk business.
Low rates are great, but this needs to be channelled towards those who are finding it difficult to obtain mortgages, such as first time buyers, the self-employed or “mortgage prisoners” at 90% Loan-To-Value, rather than further swamping the 60% Loan-To-Value and below market where there is no problem.
In fact, for these clients with good jobs, high deposits and looking for large loans, arguably the mortgage market is as open and competitive as it has ever been!
We need to see the new lower priced products at higher loan to values actually converted into solid lending statistics, rather than just a PR exercise, and that means that some relaxation of current criteria, to a level which is still sensible, needs to occur as well.
Whilst an August drop in lending to individuals is hardly surprising in a seasonal context, the effect of the scheme has undoubtedly been more limited than it should have, with lenders falling back on the same excuses such as a lack of demand from consumers, which is a little at odds with many of our experiences.
Certainly the levels of enquiries we have received do not seem to indicate a lack of demand, but the London market has always been very different to the rest of the property buying universe!
In fact, lenders are even stating that too much demand for certain products has led them to increase rates before service levels suffer as lower staffing levels are left unable to cope.
As ever, lenders do have a good opportunity to make a real difference and as has been proved in the past, Government intervention can only have, arguably should only have, a limited effect.
The question is however, do lenders really want to make that difference just yet?