Britain's banks and building societies drew £13.8bn from the state-backed Funding for Lending cheap credit scheme (FLS) in its first five months of operation, but cut loans to households and businesses by almost £2bn.
Bank of England data from August to the end of December showed that just 13 lenders used the scheme, which was designed to help revive the economy by lowering borrowing costs and increasing the supply of credit for households and businesses.
Economists described the figures as “disappointing” and Vince Cable, the Business Secretary, repeated his call for changes to the scheme, telling BBC Radio 4’s World at One that “it may need to be adapted”. He will be meeting Paul Tucker, the Bank’s deputy governor, “to discuss how we can improve it”.
The 13 lenders that tapped the FLS reduced their stock of UK loans by £1.88bn. Of those, 10 did increase lending but their efforts were more than offset by massive withdrawals by Royal Bank of Scotland, Lloyds Banking Group and Santander.
The FLS was launched on August 1 to help the economy by using taxpayer subsidies to reduce banks’ funding costs, which were supposed to be passed on to borrowers.
In the first instance, the scheme was expected to cut lenders’ costs by about one percentage point a year, handing them a subsidy of £138m on the £13.8bn of FLS drawings so far.
The Treasury and the Bank claimed the savings had started to come through on mortgages, but that it was too early to judge whether businesses were benefiting.
A Treasury spokesman said: “[The FLS] has already succeeded in reducing borrowing costs, with some mortgage rates at their lowest for five years. For example, a two-year £100,000 mortgage with a 10pc deposit is £1,000 cheaper in the first year than before the scheme started.”
The Bank claimed that lending would have been worse without the FLS, and added: “The improvement in credit conditions is expected to feed through to a gradual pick up in net lending over the course of 2013.” However, business groups said they remained concerned about the lack of impact the FLS was having.
The British Chambers of Commerce described the figures as “clearly disappointing”, while John Walker, chairman of the Federation of Small Businesses, said: “It is clear that Funding for Lending is benefiting the mortgage market more than the small business sector.”
In total, 39 lenders have signed up to the FLS, including a number of challenger banks like Virgin Money, Aldermore and Metro Bank, but 26 have yet to use it.
Lending by all 39 was also disappointing, the Bank’s figures showed. They withdrew £1.5bn of credit between August and the end of December. Of the scheme’s users, Barclays was the biggest. It tapped the FLS for £6bn between August and December, increasing net lending by £5.7bn.
Nationwide Building Society has been the other major provider of credit, using the scheme for £2.01bn of funding and boosting lending by £3.6bn.
By contrast, RBS drew just £750m of FLS money and reduced lending by £2.36bn. Santander raised £1bn through the FLS, but cut lending by £6.31bn. And Lloyds took £3bn from the FLS, and reduced lending by £5.64bn.
The three banks said the reductions reflected a reshaping of their businesses. Lloyds is reducing its share of the UK mortgage market from 28pc to 25pc, but has committed to increasing small business lending by £5bn this year.
Similarly, Santander is cutting its mortgage book back to use the released capital to grow small business lending.
Sources at the Bank and the Treasury said they were confident that the next data, for the first quarter of 2013, would be better, especially after related lending figures for January alone showed credit growth of £3.1bn compared with the £2.7bn that was withdrawn in the whole of the fourth quarter of 2012.
telegraph.co.uk
Bank of England data from August to the end of December showed that just 13 lenders used the scheme, which was designed to help revive the economy by lowering borrowing costs and increasing the supply of credit for households and businesses.
Economists described the figures as “disappointing” and Vince Cable, the Business Secretary, repeated his call for changes to the scheme, telling BBC Radio 4’s World at One that “it may need to be adapted”. He will be meeting Paul Tucker, the Bank’s deputy governor, “to discuss how we can improve it”.
The 13 lenders that tapped the FLS reduced their stock of UK loans by £1.88bn. Of those, 10 did increase lending but their efforts were more than offset by massive withdrawals by Royal Bank of Scotland, Lloyds Banking Group and Santander.
The FLS was launched on August 1 to help the economy by using taxpayer subsidies to reduce banks’ funding costs, which were supposed to be passed on to borrowers.
In the first instance, the scheme was expected to cut lenders’ costs by about one percentage point a year, handing them a subsidy of £138m on the £13.8bn of FLS drawings so far.
The Treasury and the Bank claimed the savings had started to come through on mortgages, but that it was too early to judge whether businesses were benefiting.
A Treasury spokesman said: “[The FLS] has already succeeded in reducing borrowing costs, with some mortgage rates at their lowest for five years. For example, a two-year £100,000 mortgage with a 10pc deposit is £1,000 cheaper in the first year than before the scheme started.”
The Bank claimed that lending would have been worse without the FLS, and added: “The improvement in credit conditions is expected to feed through to a gradual pick up in net lending over the course of 2013.” However, business groups said they remained concerned about the lack of impact the FLS was having.
The British Chambers of Commerce described the figures as “clearly disappointing”, while John Walker, chairman of the Federation of Small Businesses, said: “It is clear that Funding for Lending is benefiting the mortgage market more than the small business sector.”
In total, 39 lenders have signed up to the FLS, including a number of challenger banks like Virgin Money, Aldermore and Metro Bank, but 26 have yet to use it.
Lending by all 39 was also disappointing, the Bank’s figures showed. They withdrew £1.5bn of credit between August and the end of December. Of the scheme’s users, Barclays was the biggest. It tapped the FLS for £6bn between August and December, increasing net lending by £5.7bn.
Nationwide Building Society has been the other major provider of credit, using the scheme for £2.01bn of funding and boosting lending by £3.6bn.
By contrast, RBS drew just £750m of FLS money and reduced lending by £2.36bn. Santander raised £1bn through the FLS, but cut lending by £6.31bn. And Lloyds took £3bn from the FLS, and reduced lending by £5.64bn.
The three banks said the reductions reflected a reshaping of their businesses. Lloyds is reducing its share of the UK mortgage market from 28pc to 25pc, but has committed to increasing small business lending by £5bn this year.
Similarly, Santander is cutting its mortgage book back to use the released capital to grow small business lending.
Sources at the Bank and the Treasury said they were confident that the next data, for the first quarter of 2013, would be better, especially after related lending figures for January alone showed credit growth of £3.1bn compared with the £2.7bn that was withdrawn in the whole of the fourth quarter of 2012.
telegraph.co.uk
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