tony's blog

Thursday, November 28, 2013

No More FLS for mortgage lending

The Bank of England have today announced that they are refocusing the FLS from 2014 towards business loans and away from mortgage lending and I for one am pleased.
In fact I was surprised in April when the Bank of England announced an extension of the FLS through to January 2015 from the original January 2014 deadline.
Why should FLS for mortgages go? Well it has to be remembered that FLS was there to meet a crucial supply of credit and funding to the markets at a time when debt capital markets were still damaged from the Global Financial Crisis. It was necessary. But it was always the plan that this would provide funding until markets recovered. And there is plenty of evidence that markets are well on the way to recovery as recent debut RMBS issues from Precise and One Savings Banks have shown.
The market needs to get back to core funding: securitisation, covered bonds and retail deposits. It needs to be weaned off FLS and other forms of Government support and now is a good time. The UK economy is making good progress, debt markets are repairing and UK housing market activity is picking up. In some respects it’s all going too well and there have been signs of ‘credit creep’ and margin compression. Signs of a buoyant market. But as the Bank of England say today in their Financial Stability Report  “… risks may grow if stronger activity is accompanied by further substantial and rapid increases in house prices and a further build-up in household indebtedness, which is already elevated for some households. These risks would be accentuated if underwriting standards on mortgage lending were to weaken as has been the case in previous house price cycles”.

 So together with the FLS announcement we have other measures being taken by the Financial Stability board by way of capital changes and credit stress tests and this shows that the markets and economy are being very carefully monitored and managed. Frankly this should give us confidence that the market is being managed to sustainable end shouldn't it? It does me.

No comments:

Post a Comment