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Housing bubble fears prompted Bank of England's Funding for Lending 'refocus'

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Housing bubble fears prompted Bank of England's Funding for Lending 'refocus'


Published by Jon Land for in Central Government and also in Bill Payments, Housing

Housing bubble fears prompted Bank of England's Funding for Lending 'refocus' Housing bubble fears prompted Bank of England's Funding for Lending 'refocus'

The Bank of England has announced plans to "refocus" its Funding for Lending Scheme (FLS) away from the mortgage market in an attempt to avert a housing bubble.

BofE governor Mark Carney said the changes to the terms of the scheme would see incentives diverted towards small businesses from the end of January 2014.

The FLS has contributed to a substantial fall in bank funding costs since it was launched in July 2012, which in turn has fed through to significant improvements in household credit conditions.

There are fears, however, that left unchecked government intiatives such as Funding for Lending and the Treasury's Help to Buy scheme could lead to a housing bubble. House prices growth has accelerated strongly this year, with average prices presently around 7% higher than a year ago, and still heading upwards.

The Bank of England said in a statement: "Although the growth in household loan volumes remains modest, activity in the housing market is picking up and house price inflation appears to be gaining momentum. As a result there is no longer a need for the FLS to provide further broad support to household lending.

"The changes we are making have no implications for HM Government’s Help to Buy scheme, which is designed to address the specific issue of access to mortgages for borrowers without large deposits, unlike the FLS which was designed to boost lending more generally."

Mark Carney added: “Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households.

"The changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

Commenting on the changes, Paul Smee, director general of the Council of Mortgage Lenders, said: "Although the changes to the FLS may be a surprise, they are not a shock. Mortgage lenders are well equipped to meet their funding needs, as wholesale funding market conditions have improved and retail deposits are robust."

Shares in housebuilding fell sharply after the Bank of England announcement on funding for lending. Persimmon and Taylor Wimpey, leading players in the construction industry, saw shares tumble by 7%.


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