Member Article

Law firm warns that Funding for Lending will have winners and losers

Liverpool law firm Morecrofts is warning that the repositioning of the Funding for Lending Scheme could be a “double-edged sword” for the regional economy.

The Bank of England first introduced the programme in July 2012 to incentivise banks to lend more to households and businesses by reducing the cost of funding such loans.

However, spurred by rising property prices and fears of a ‘housing bubble’ being created as the Help to Buy scheme takes effect, Funding for Lending has now been revised to include only business loans.

Donal Bannon, commercial law partner at Morecrofts, says: “This change of course is undoubtedly good news for SMEs, who should now find banks are more accommodating when it comes to applying for growth funding.

“From next year, the volume of business loans will be the sole consideration as banks attempt to obtain cheap loans from the Bank of England. So, if banks want access to that cheap finance, they will need to maximise their lending activity, which in turn should allow businesses to plan for future growth and create new jobs.”

However, as the ability of banks to access lower cost finance diminishes, there are fears that the cost of mortgages may be forced upwards.

Peter Pownall, a licensed conveyancer at Morecrofts, says: “Funding for Lending has contributed to a substantial fall in bank funding costs since its introduction, so it is surprising to see it rechanneled after little over a year.

“While there are clear advantages for businesses, it may be a double-edged sword in terms of mortgage rate rises – a fear illustrated by a sharp fall in housebuilder share values following the announcement.

“The decision has been largely influenced by the improving housing market, especially in the south east, yet north of Watford the picture is nowhere near as rosy.

“It’s difficult to envisage Help to Buy having quite the same market impact as Funding for Lending so we can expect to see the north-south property divide continue to widen.”

This was posted in Bdaily's Members' News section by Simon Malia .