Non-banks step closer to FLS club
In last month’s MPC meeting, members expressed an interest in supporting the flow of credit “more broadly” including the flow from non-banks prompting Vicky Redwood, chief economist at Capital Economics, to suggest that the MPC is hinting the scheme may well roll out beyond the banks.
She said: “The MPC’s relative satisfaction with early results of the FLS suggests that it might be tempted to try to develop the scheme further.”
John Heron, director of lending at Paragon, said he had lobbied “long and hard” for change directly and through the Intermediary Mortgage Lending Association and the Council of Mortgage Lenders.
He said: “Non-banks like Paragon have been excluded from all the initiatives that have been introduced to improve the flow of funding since the onset of the financial crisis.
“Whether any one initiative will balance the scales it is hard to say but the principle is that we should be given the same options that other lenders have available to them.”
Alan Cleary, managing director of Precise Mortgages, agreed, saying that the MPC praising FLS and discussing improvements in non-bank lending in the same conversation was no coincidence.
He said: “These guys do not make comments like that without it becoming a real possibility.”
Cleary said by opening up the scheme, funds would make it out to people in the market who really need it.
He said: “Prime customers with lots of equity have enough choice, they don’t need any more. These funds need to find their way out to customers who have narrowly missed out on a high street mortgage – close to being prime but not quite making it.”
He added: “Banks have enormous balance sheets and the money is not making it through the varying complexities but our balance sheet is relatively simple. If we secured £200m from the scheme we would lend £200m to our customers.”
Non-banks were one of the drivers that helped the increase in funding that led up to peak of the market and while there were issues about the scale of funding that became available, it was not only the fault of the non-banks.
The Intermediary Mortgage Lenders’ Association regards the non-banking sector as an important component for diversity and choice in financial services.
Peter Williams, IMLA executive director, said: “They are the magic ingredient and have been previously over looked. Pre-crash non-banks were able to tap into wholesale and securitisation markets more effectively than other institutions and this is much needed now in a mortgage market that is short of funding.”
Williams added that if the government took on board the suggestion of extending FLS it would be a recognition that there is a lack of competition in a market which has become too concentrated around a small number of lenders.
The MPC did not define what it meant by non-banks so it is not clear how far the funds would be extended should it be agreed.
However Cleary said the definition should be simple.
He said: “It should be restricted to regulated lenders with lending permissions for first charges.”