When is an extension not an extension?

David Gilman is Partner in charge of Blacks Connect

When is an extension not an extension? The answer is when the mortgage market appears to be growing in strength. I am talking of course about the Funding for Lending Scheme (FLS) and the rather surprise decision by the Bank of England to stop participating lenders accessing it in order to use its funds to lend to households. 

We should remember that earlier in the year the FLS was extended however it now appears that those in the top jobs have been unnerved by the growing strength of the UK mortgage market in particular and it has been deemed time to loosen the State’s apron strings.

The impact of this decision is already being heavily debated but the true answer is that it is far too early to know exactly what the fallout will be. 

Latest quarterly figures regarding FLS showed that for the first time net lending had exceeded the amount of money drawn down and in quarter three alone lenders had taken £5.8bn out via the Scheme which amounts to £23.1bn in total since it was launched.  

This, in anyone’s book, is a considerable amount of money and I suspect many lenders will be hard pressed to find replacement funds as cheap as those on offer through the FLS.

On the one hand of course this decision can be taken as positive news. The fact is that a stronger mortgage market is clearly visible and the Bank believes it is time for lenders to at least walk some of the funding path on their own two feet rather than propped up with a State crutch. 

On the other hand it is a fairly abrupt decision and one wonders if those lenders who have taken a large amount of funds from FLS will be in a position to find alternative sources or will it simply be the case that their lending appetite lessens by exactly the amount they would have continued to draw from the scheme?

Answering that question is extremely difficult and only time will tell. The big worry for some stakeholders is of course that this type of fund weaning is being introduced too soon when the ‘infant’ is still dependent on State nourishment. The Bank have clearly decided that the market is big and strong enough to handle such a decision, indeed to stretch the metaphor even further, the worry appears to be that the mortgage market baby is getting far too big, far too quickly. And with other government succour coming in the form of Help to Buy this could produce all kinds of potential health problems.

Since Mark Carney took over the governor role at the Bank he has talked a lot about the tools at its disposal in order to intervene in a mortgage/housing market which they believe might be overheating. And here it is using one of those tools. What the 

Bank gives it can take away however while the importance of this sector to UK plc cannot be underestimated – which is why we have seen so much support put in place – at the same time we need a return to normalcy. 

Also, given the huge damage the Credit Crunch did to the economy the last thing any government or regulator wants now is to preside over an unsustainable housing boom that can only end badly for everyone.

In a very true sense this is all a balancing act for the powers that be. Help boost the housing and mortgage markets and the country receives plenty of dividends; do too much without intervening and this is a sector that can get completely carried away with itself before collapsing on its backside. 

The delicate nature of this work means that I suspect we will see a much more interventionist approach to our marketplace in the months and years ahead and therefore we should perhaps all get used to the accelerator being applied on some occasions, swiftly followed by a pull of the hand brake. 

There is a touch of trial and error to such an approach but the main objective will be to ensure we don’t all end up crashed into an economic brick wall.

And on that note as this will be my last blog of 2013 I would like to wish all readers of Mortgage Introducer a very happy holiday season and I look forward to catching up with you again in 2014. It is bound to be an eventful year.