The Bank of England and HM Treasury have recently announced further changes to the Funding for Lending Scheme (FLS). Whilst the FLS will continue to encourage business lending and particularly lending to SME’s its support for household lending is to end. This reflects a belief that the household lending market is regaining health (particularly given the upturn in the housing market) whilst the SME lending sector continues to require support.
The extension announced back in April (see our previous blog post Funding for Lending extension – cautiously welcomed) will continue to allow parties to draw under the FLS until January 2015 although household lending will cease to benefit from additional allowances in 2014. Participants lending to SMEs will continue to be able to draw £5 in the FLS for every £1 lent. The fee for all drawing will be 0.25% per annum.
It is thought that the change is likely to result in higher mortgage rates. Mark Carney, Governor of the Bank of England, has said that the refocus from household to small business lending was for financial stability reasons, addressing the risks that could stem from increasing household indebtedness and house price rises. He commented that the changes “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“.