We can’t rely on external stimulus
Bob Hunt is Chief Executive of Paradigm Mortgage Services
The Funding for Lending Q1 update published by the Bank of England recently may have shown pretty modest results for the first three months of the year, but judging purely by the industry feedback, you would have thought we had been plunged back into the dark days of 2008/9.
A host of commentators have lined up to stick the boot into the initiative with many seemingly ready to consign it to the scrapheap despite encouraging signs before the slow start to the year.
One small thing that has been overlooked in much of the hysterical reaction to the latest figures is that the scheme may appear to be having less of an impact lately because lenders are feeling confident enough about their prospects to not have to access the subsidised funding.
Yes, net lending figures are still fairly flat across the board regardless of how much has been drawn down from the scheme, but do the naysayers really believe the increased product availability at above 90% loan to value would have occurred without the initiative’s intervention?
I’m not convinced. In this respect, the scheme is effectively working indirectly – its initial introduction restored some confidence to the market and this has remained despite it not being immediately apparent in the latest figures.
Let’s not lose sight of the fact that the Funding for Lending scheme was never intended to save the day on its own, but rather act as a stimulus to get things moving again which it can be argued it already has.
It is interesting that many of those that moan about its ineffectiveness are seemingly absolving the lenders of any responsibility too.
Billions have been drawn down from the scheme and the Government can’t really be blamed for the fact some lenders have not yet chosen to pass on the funding to borrowers.
There seems to exist the mindset in some quarters that the State could ease capital adequacy requirements to ensure lenders use the scheme for the intended effect rather than deleveraging, but this selectively ignores not only the fact that most of the capital directives emanate from Brussels, but also that they are vital to ensure no return to the days of irresponsible lending.
While schemes such as Funding for Lending and the Help to Buy initiative unveiled in the Budget provide useful short-term injections to the market in terms of lender and borrower confidence, the industry can’t keep relying on such external stimulation and needs to step up to the plate itself.
No-one is suggesting lenders return to reckless lending at 100%-plus LTVs, but they cannot continue to shy away from the 90% and 95% home loans that are vital to get first-time buyers moving again.
Whether they help mitigate this risk through the use of mortgage insurance is up to them, but hand outs from the State won’t always be available. You only have to observe the amount of coverage debating the Government’s exit strategy around the mortgage guarantee element of Help to Buy to see there are huge swathes of stakeholders who believe it isn’t really the State’s role to be intervening in the first place.
Perhaps lenders might consider themselves lucky they have received the support they already have and the industry now needs to work on developing its lending avenues in a number of other directions.