Funding for Lending – the panacea?

I’m a little worried that commentators are already judging the success or failure of the recent Government and Bank of England Funding for Lending scheme without giving it a fair hearing. I’m not sure what good it will ultimately bring (but surely having this in place is better than having nothing at all) but realistically it is early days. After all the scheme was only launched in August and it will take time for applications, never mind completions to flush through the system. However already I have seen various comments from analysts suggesting that it will do little to help the first time buyer market. Moreover there are fewer deals around for higher loan to values than a year ago and this needs urgently addressing if we are to kick start the housing market.

It is a pity that non bank lenders and smaller banks and building societies will be unable to benefit from this scheme, particularly when those are the very lenders which are likely to be the ones to focus on the niche markets that we so desperately need to revitalise. Perhaps this can be addressed in time and I urge the Government to think again about this omission if they are going to get the money where it is really needed.

Whilst I agree that we need more money to flow into key markets it is understandable that banks are being cautious. Even with extra available funding, they are still more likely to adopt risk averse behaviour and ration their lending to a smaller audience of borrowers as a means of conserving balance sheets. 

So then it comes back to the question as to how we help those who have a deposit of less than 10% to put down? It is true that there is an issue here. Average rents are increasing and we are locked in a spiral as more first time buyers are locked out of the housing market so have to turn to the private rental market. Maybe we should wait to see how the Funding for Lending scheme pans out.  Then if it really fails to deliver and has done little to help this target market we maybe need to think of providing new ways to fund these loans. After all the demand is there. 

No man is an island

It was the Goldman Sachs analysis this week that caught my eye. It highlighted recent lending activity across regions. No surprises then that banks across Europe have reined in cross border lending given: 1) the amount of regulation that they now have to contend with and 2) suspicions that the euro may implode in the future.

So unsurprisingly you have national supervisors compelling local banks to build up capital and liquidity at the expense of other EU countries. As one regulatory source has said:’As the crisis has deepened there has been a rationale for national regulators to make sure their own country is ok’. So a case of batten down the hatches then. Not great considering we are all part of the global market and what impacts in one country usually has a much wider knock-on effect internationally.

I suspect this comes down to confidence as banks in Northern Europe appear to be curbing their exposure to Mediterranean countries for fear that their loans will be repaid in reintroduced national currencies. Understandable but given we live in a globalised economy we cannot afford to take this unilateral ‘I’m alright Jack’ approach. There has to be a balance between regulatory controls and a common sense attitude to cross border lending. Otherwise the markets will grind to a halt and it could go horribly wrong for us all.

The Great House Price Conundrum

Is it house prices up? Or house prices down? Or house prices remain the same? Well I guess it depends on what survey you are looking at. The recent Nationwide House Price Survey supports that view that house prices have fallen again last month and are 2.6% lower than they were a year ago. However the Land Registry reports that house prices have risen slightly over the year albeit sales of £1m plus homes has dropped sharply. There certainly is a variance of views at the moment.

I think what it is fair to say is whatever analysis you are looking at is that the market is starting to stall somewhat. It is still early days with the new Funding for Lending scheme so it is unclear as to what good this will do. Early comments suggest that whilst it has been good for people with a large deposit to put down, it is less helpful to those customers on higher LTVs but maybe this will change over time.

So how important is maintaining a robust housing market for the economy? Hugely important. Not only does a healthy housing market deliver jobs in various sectors but owning your own home is still a huge aspiration for many people living in the UK. It is also a huge lever in instilling greater consumer confidence in the economy at large.

Whilst the IMF suggests there is a correction to be made and we still have a house price bubble in the UK, I tend to dispute this view. I think that demand will always outstrip supply (we can’t build enough houses to meet demand) so I don’t believe that house prices will crash anytime soon. However I predict house prices will remain at best stagnant for the rest of this year and the market needs as much support as possible to encourage lenders to provide funding across the board supporting all LTV groups. Let’s hope the Funding for Lending scheme does the job it was set up to do.