The Funding for Lending Scheme (FLS) was launched by the Bank of England and HM Treasury in July 2012. The Scheme is designed to boost lending from banks and building societies and, at the same time, make a positive impact on the housing market.
Here, The Mansfield Building Society’s chief executive Gev Lynott tells us briefly how the scheme operates and explains what action The Mansfield is taking to stimulate activity in the mortgage market, including the somewhat neglected sector of higher loan to value mortgages.
Gev says "The idea behind the Funding for Lending Scheme is that the Bank of England provides lenders with relatively cheap funding until 2017, and the lenders then use the money to increase their lending to individuals and businesses. In return, lenders provide the Bank of England with security in the form of what is known as a "collateral swap". This sounds like a complicated arrangement but in actual fact it is a fairly straightforward financial arrangement. With more loans available at cheaper rates, lenders expect to attract potential borrowers who would otherwise be put off by having to pay a higher rate".
Gev says the Scheme initially favoured larger lenders because most had already set up collateral arrangements with the Bank of England which meant that no new special access arrangements were required. However, the Scheme has now become a more attractive proposition to smaller lenders and The Mansfield will be looking to take full advantage.
Gev would prefer to see the extra funding also being passed on to borrowers at the 75% - 95% loan to value levels to stimulate mortgage demand across the board and adds "So far, a lot of the cheap FLS money is being directed towards borrowers who are in the fortunate position of either having a sizeable deposit or a substantial amount of equity in their home. This means that borrowers with deposits of 40% or more have been getting most of the benefit with little assistance going towards first time buyers or the many borrowers who are struggling to provide a deposit of more than 25%.
"The Mansfield is keen to lend and has been throughout the recent financial downturn. We work hard to support niche markets that are sometimes ignored by larger lenders and, unlike some of the bigger lenders, we are currently offering well priced products up to maximum loan to value of 95% as well as mortgages at lower loan to values. This means that The Mansfield is an ideal starting point for those who are thinking about buying a house but are undecided about what to do or where to go. We offer a range of affordable mortgage solutions on both fixed and discounted rates. Borrowers looking to keep repayment costs down can also take advantage of our FirstBuy mortgage where an equity loan of up to 20% of the cost of a new house is paid for by the Government and house builder on selected new housing developments. For those wanting to part rent/part buy we have teamed up with several mortgage intermediaries and housing associations to offer a shared ownership mortgage so that borrowers can gradually increase their ownership and mortgage repayments over time".
Gev concludes "I call upon other lenders to share out the benefits of cheaper FLS funding across a broader range of borrowing needs and to go beyond the 60% loan to value threshold".