The report paints a divided picture: the big banks are using drawdowns from the scheme to satisfy capital adequacy requirements, but passing on little of that as funding to borrowers; building societies, on the other hand are using the accessed funds to encourage the market – coupled with a prudent approach to lending characterised by the use of mortgage insurance – helping new borrowers to realise their property aspirations.
The Bank’s update shows that, as of the end of 2012, a total of £13.8bn has been drawn down from the scheme. However, despite banking groups such as Lloyds Banking Group and Santander accounting for £3bn and £1bn of this respectively, both witnessed drastic reductions in both their cumulative net lending in the second half of the year and in their Q4 2012 lending flow – Lloyds with a decrease of more than £3bn and Santander less active by £2.8bn.
Mutuals such as Monmouthshire Building Society, however, have only drawn down £5m under the scheme, but lent £37m in the second half of 2012, with £23m of this in the last quarter alone. This activity is testament not just to the flexibility, maneuverability and proactivity of smaller lenders compared to their larger counterparts, but also shows how mortgage insurance can remove reticence to lend to first-time buyers at higher loan-to-value amounts.
Simon Crone, Vice-President Commercial – Mortgage Insurance Europe at Genworth, said:
“While the Funding for Lending scheme has stimulated activity in some parts of the market, it is fair to say that it hasn’t yet had the comprehensive impact that was to be expected. Indeed, in the pockets where it has exerted influence such as with Monmouthshire Building Society, it has been as much about them using the resources in tandem with utilising mortgage insurance as it has from the drawn down funds alone.
“It is all very well the larger lenders using funds from the scheme to satisfy capital adequacy requirements, but the intention of the initiative was to help first-time buyers and small business owners that had been hitherto frozen out of the market. Building societies realise this and the importance of new borrowers to the overall health of the mortgage market.
“Mortgage insurance helps lenders mitigate the risk of lending high loan-to-value amounts to borrowers and it is increased take-out of such policies that is just as likely to lead to an uptick in first-time buyer activity as any funds drawn down from the Funding for Lending scheme.”
Andrew Lewis Chief Executive at Monmouthshire Building Society, commented:
“We are immensely proud that not only have we managed to maintain our lending to first-time buyers against a tough economic backdrop, but that we have done so at a time when many other lenders seem reluctant to help the next generation of homeowners.
“The funds drawn down from the Funding for Lending scheme have assisted us in doing this, but it is incorporating mortgage insurance into our prudent lending approach that has been the real enabler.
“Deposits of 20% of the property’s value and above are beyond the reach of many borrowers who are otherwise perfectly suitable candidates for mortgage finance. Mortgage insurance has allowed us to sensibly increase our loan-to-value amounts meaning more business for us and more first-time buyers stepping on to the property ladder which is a win-win for all involved.”
