The reason why The Funding for Lending Scheme was brought in 2012 was driven by the BOE and the governments desire to free up the backlog of lending to consumers that may have been holding back the property market, and lending generally to business, that was affecting growth in the UK.
It was a very welcome measure at the time and highly appropriate for the post credit crunch era where lenders were pulling in their ‘horns’ in order to protect their capital ratios and loan books.
The BOE were very wise to step in at that point and the present UK growth rate (which is one of the most prolific in the developed world today) is partly due to this measure.
Mark Carney’s steady hand on the tiller is understandably concerned that too much stimulant on mortgage lending could produce an inflationary spiral (particularly on property) and this is the reason why this facility has been prematurely curtailed. Although he is wise to keep this going on business lending which is still badly needed in some sectors.
Now that the Banks and Building Societies can see some visible and sustainable growth both in the UK economy and property markets, not just in the Capital but elsewhere in the UK, technically they do not need this safety net anymore since lending, in the main, is carrying on on its own to the reasonable satisfaction of consumers.
The lenders are still risk averse (and so they should be, the memories of 2008 are still alive in their minds) and the time taken to grant a mortgage is still quite long but it’s happening.
I don’t believe this curtailment will have an effect on mortgage rates since the outlook for the Bank Rate is stable for the next year, or possibly two, and then will only rise gently afterwards. This scenario should not scare the lenders.
Having said this lenders generally use any excuse to increase their lending rate even if there is no real rationale to support it. So, if rates do ease up a little bit it’s more to do with commercial opportunism than any practical need. Trusting, of course, that the wholesale money market does not react adversely to this.