Funding for Lending scheme fails to deliver

Banks and building societies cut loans to households and businesses by almost £2bn despite drawing £13.8bn from the government’s Funding for Lending scheme in its first five months of operation.

The Bank of England announced that net lending fell by £2.4bn in the final quarter of last year compared with the previous three months.

Official Bank of England figures reveal that while 39 lenders signed up to the scheme, just 13 have actually used it and reduced their stock of UK loans by £1.88bn. Out of those, 10 groups did increase lending but their efforts were offset by withdrawals by RBS, Lloyds and Santander.

Business Secretary Vince Cable repeated his call for changes to the scheme, telling BBC Radio 4’s that “it may need to be adapted” and will be talking with the BoE’s deputy governor Paul Tucker on how to improve it.

Continued...

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Comments
JAADAMS's picture

A thought...

JAADAMS | | Permalink

Banks now ask for a SA 32 from HMRC - perhaps what is really happening is that prospective house purchasers are not applying for mortgages as they are put off by this? Especially self employed whose final taxable profit is low? Clients of course telling the mortgage broker that they earn £x thousand which is the gross.

In the 'good old days' (at least at the beginning of the '80's) effectively only PAYE earners could borrow enough to buy a property. I remember having to give up working self employed for a couple of accountants (PAYE rules etc were not as stringent as now) and go and work for one of the 'Big Firms'  - just so I could get two years worth of P60's.

I had previously loved working for the accountants and loathed every minute with the 'Big Firm'.

 

accountsdragon's picture

But what about the savers?    1 thanks

accountsdragon | | Permalink

The borrowers make the headlines, but this initiative seems to have forced savings rates even lower.  It's no wonder savers are tempted into schemes they don't understand in the hope of a better return.

Paul Scholes's picture

Cut the banks out    1 thanks

Paul Scholes | | Permalink

A few months back the government announced it was lending £100M direct to businesses, £20M of which via Funding Circle, and given that all government schemes to back or guarantee bank lending have never worked, I don't see why billions shouldn't flow this way directly to business or via say ZOPA to individuals.

Banks are not interested in this business and so why force it on them?

Banks are no longer run by bankers...

louisVW4 | | Permalink

It would appear that all the retail/business banks do these days is deal only with whom THEY perceive to be the most creditworthy among us. In which case, they are not doing anything worthy of being called 'banking', unless the term is now reserved for simply taking in our money, using it to make money for themselves, and charging us/paying very little for the privilege.

Where is the discretion from a bank manager who e.g. looks holistically at his customer's ability to service a loan? It no longer exists. The application is put through an automated process which, as far as I can see, involves no more than a cursory glance at Experian, etc, which does not contain any information about actual 'wealth'; ability to pay. And why would I have faith in a business bank manager to advise me on how I should be running my business, when he's never had any business experience himself ...and can't even write properly?

I have been working for myself for 5 years now, but when we took out our mortgage in 2006, both my partner and I had permanent well paid jobs. Even by the conservative norms of x multiples of earnings, we should not have 'qualified' for our mortgage, let alone the significant extension we took for refurbishments. However, our lender could see we could easily afford it, and still can, even though I am no longer permanently employed and earn a pittance according to my SA. I have a credit rating as high as it can get, and liquid assets elsewhere, yet I have been told I will not even come close to qualifying for a mortgage should I ever wish to move for a better rate. I won't even bother with a business loan!

This is irrational, until you realise all the banks are interested in is growing their balance sheets at taxpayers expense ...and the BoE knows it and is letting them get away with it.

too strong to get a loan!?!?!?!

M Keates | | Permalink

A client of mine wanted to take a loan of £150k (in conjunction with their existing loan and to replace the previous loan of £150k that had finished Dec 2012). With a balance sheet of £1 million, turnover of £4 million, ytd profits of £600k the bank refused on the basis that there was sufficient cash flow in the business not to require a loan.

They then contradicted this with concerns about overseas subsidiary taking 4 years to repay its loan.

Just who are the banks supporting?

listerramjet's picture

oh well

listerramjet | | Permalink

is anyone actually surprised it failed?

InflatableBassPlayer's picture

Balance Sheets

InflatableBassPlayer | | Permalink

Surely the banks are merely using the scheme to bolster their own balance sheets.   The same old cosy little gang, merely the name has changed on the door.

Winners (debt) & losers (savers/pensioners) ....

JC | | Permalink

@accountsdragon - Quite right. Comparison of winners & losers since 2008

Losers

  • Savings Deposits - £100,000 on deposit has lost out on almost £30,000
  • Annuity rates have been decimated - £40,000 has been wiped off the income paid on a £100,000 pension pot over the period of a typical retirement. Down from £7,350 at the age of 65 from a £100,000 pension pot to £5,350 a year
  • Prudent savers retirement plans in tatters

Winners

  • Low interest rates provide 'winnings' for some mortgage borrowers

Richard Brown, 33, and his wife Alice, 35, from Haywards Heath, West Sussex, have saved nearly £50,000 thanks to the falling cost of borrowing. The couple, both building surveyors, saw their repayments plummet from £1,800 to £250 a month as Bank rate sank to 0.5%.

Quote

'It was like a miracle. Month after month we got a letter from Halifax telling us our payments had fallen'

Conclusion

There is a two class system currently in operation - those who are benefitting from low interest rates (generally those with debt) and those who are paying for the price for others to benefit from artificially fixed low interest rates (pensioners & savers)

Solution

Stop underwriting those who are in negative equity or have 'zombie' business that should be bust and raise interest rates to a sensible level & take the fallout. Constantly trying to mutualise the problems of the overstretched, feckless or just plain unfortunate places a ridiculous burden on the rest of society and is one of the main reasons why they country is still weighed down with problems.

Governments should stop interfering & let market forces come into play, which would have caused a proper shake out in the first place and allowed re-generation instead of proping up areas that should have just gone bust (businesses or people)

Main bank rejection isn't the end

Joe from Fundin... | | Permalink

@mkeates

Unfortunately you highlight what is an increasingly challenging situation for businesses (and their accountants) at the moment. When your bank (which you've dealt with for a number of years and from which you expect support and guidance) rejects your finance request for reasons that don't seem reasonable, where else can you turn?

What lies at the heart of this issue is the fact that a business is unaware of the particular risk appetite of their bank at a particular time. Understandably, they want their case to be decided on its individual merits. However the reality is there's another dynamic they don't know about and probably aren't informed of - the bank's risk appetite at a particular time.

However, don't despair!

Just because your client's main bank isn't keen, it doesn't mean other providers won't be. Trust me, we've helped a number of firms to access finance over the last year that had originally been turned down by their main bank. As already mentioned, the key is matching your client's particular circumstances with a lender's risk appetite at a given time. 

My advice would be to persist and I'm sure you'll be able to find the right finance from the right provider. Good luck and feel free to give us a call if you'd like any help.

Kind regards

Joe from Funding Options

 

The banks are saying that

Melanie221 | | Permalink

The banks are saying that demand from businesses for finance has not been there, that it is not a lack of lending but a lack of businesses applying for loans, and that 'most' loans that are asked for are approved. I find this hard to believe when many alternative business lenders have seen an increase in applications. We will see!

 

Mel,

Capiota

winners...and losers

justsotax | | Permalink

not sure house buyers have been the real winners - more recently they have to save large deposits, and for those who purchased their house prior to the slump, they were underwriting the surge in house value and probably paid the 30-40K apparent saving in interest in return for a current loss of capital value.  

 

Pensioners aren't doing so bad....inflation busting rises in pensions and a house value (if they own one) that they could only have dreamed of 20 years ago.  As for savers, well the bank has never been the place to keep money (ever!!!) - if you wanted to keep above inflation you had to do something more with your money...

Interesting ideas ...

JC | | Permalink

@justsotax

Houses are currently massively over valued and engineered to remain as such by Government interest rates, which effectively prevent new buyers from entering the market at a sensible price, 50%-70% of current values. Raise interst rates, see the foreclosures & watch house prices fall drastically - not what the Government wants

About 30% of those with mortgages are in negative equity - ergo, being underwritten by pegged low interest rates subsidised by savers/pensioners. Surely, anyone who cannot afford a product and has other people pay for it is by definition a 'winner'. Nevertheless, an Interesting concept that the rest of the population are expected to pay for someone’s loss in value '.. probably paid the 30-40K apparent saving in interest in return for a current loss of capital value ..' - eh!

The UK state pension is one of the ‘meanest’ in the developed world and this is why there are all sorts of add-ons (fuel, bus passes etc.). Not only is it lower than all but three of the 34 developed nations but also Britons face having to wait longer than people in any other industrialised country before they can retire

The UK get state payments worth 41.5% of average after-tax earnings. In Spain and Italy, the state pension is worth 84.9% and 75.3% of average earnings respectively and in the US, which has one of the least generous welfare systems, the state pension there is worth 50% of average earnings. In France it is 60.4% and in Germany 57.9% - and Greece 111.2%!  

As for house values - yes they may have bought a house for £72k 20 years ago, which is now worth the national average of £238k, but averaging out the interest rate over that period to 6% and compounding the value gives £200k+. Therefore eluding to it as a 'windfall' is nothing of the sort, just basic maths