Member Article

Businesses lose out on UK credit scheme benefits

The Bank of England’s (BOE) cash boost to the economy has failed to open up credit to SMEs, while mortgage lending unexpectedly increased.

Banks and building societies increased secured lending to households over the summer, according to BOE’s quarterly Credit Conditions Survey, however government schemes to restart the economy have not benefitted business.

The largest increase in mortgage lending since 2007 was experienced after BOE and the Treasury injected £80bn into the economy through the Funding for Lending scheme in August.

BOE reported that the scheme had been successful in freeing up cash within mortgage lending, however small and medium sized businesses had not yet seen the advantages of the initiative.

Lenders do not expect any change for business lending in the final quarter of 2012, although BOE said conditions for wholesale funding may have a positive impact on credit conditions.

Demand for credit fell in the corporate sector for both small and large sized businesses, however demand from medium sized businesses remained the same.

In its survey, BOE said: “A range of factors were reported to be weighing on demand, in particular

a lack of merger and acquisition activity and capital investment, as firms have remained cautious given the current economic environment and uncertainty relating to the euro area.

The statement continued: “Affordability of debt service was commented to be a key issue for small businesses.”

Brian Murphy, head of lending at Mortgage Advice Bureau, commented: “The easing of the wholesale funding markets along with the Bank of England’s Funding for Lending scheme has allowed lenders to realise their market share objectives, and there’s been a noticeable increase in mortgage availability in the last quarter.

“The Credit Conditions Survey suggests the availability of secured credit will increase significantly for the rest of the year, but we need lenders to focus on the bottom end of the market.”

This was posted in Bdaily's Members' News section by Miranda Dobson .