If you wanted an idea about the importance lenders have placed on the Funding for Lending Scheme (FLS) since its inception then look no further than the latest set of figures for drawdown. As you will know the government announced in its Autumn Statement last December that lenders would no longer be able to use the cheap funds for residential mortgage purposes after the end of January this year however it did not stop them drawing down funds via the FLS for such a purpose up until the deadline.
This December announcement obviously sounded the starting gun for lenders to ramp up their involvement in the Scheme before it was too late. As of February 1st any drawn down funds can only be used for business loans which is why in the four months prior to the end of January lender participants drew down a significant £18.8 billion via FLS. Compare this to the £5.5 billion that was taken up by lenders in quarter three 2013 and you can see that demand for the funds (for mortgage purposes) has been huge.
At the moment there is a lot of discussion in the press about the impact of the Mortgage Market Review (MMR) particularly whether lenders appetite will be dampened by it and whether the tighter criteria/underwriting checks will make it far more difficult for potential borrowers to secure a mortgage. If this is the case then we may see lending levels slip from their recent short-term highs which will make predictions of a £200 billion gross lending mortgage market in 2014 much more difficult to achieve.
The positives from these FLS figures however do appear to show a lending community – certainly those eligible and actively involved in the scheme – who are actively looking to lend throughout the rest of the year. Indeed, given the amount that has been drawn down from the FLS – precipitated by the Government’s announcement – we might well be looking at a lender community ‘forced’ into lending these funds earlier than they would have been anticipating.
Of course the FLS funds do not have to be used immediately and we may still see some collateral damage from the MMR during the lead-up to April 26th and the months straight after it. While many stakeholders will be hoping the MMR does not mean a tempering of lender activity I believe we have to expect a certain ‘bedding-in period’ where lenders, brokers and borrowers alike all have to get used to the changes and the reality of working within this new environment.
I am not certain we will see a ‘mortgage drought’ as some are predicting but there are always going to be teething issues and one wonders if now isn’t the time to start making your clients aware of the new rules and how they might impact on their ability to secure finance. Those who are returning clients in particular might not be used to the increased level of scrutiny their household finances could come under, especially if the underwriting teams are needing to delve deeper into the borrower’s situation in order to make a decision. We have already seen something of a furore around the level of detail that is going to be required by certain lenders and therefore now could be the time to put in the groundwork with clients to ensure this ‘intrusion’ does not come a surprise.
At present there is something of the unknown about what the MMR might bring however while the Spring and early Summer may see a pull-back in terms of volumes, the good news is that lenders have earmarked funds to use in the mortgage market. The big question is whether they’ll feel confident in their systems and processes to use them immediately post-MMR or if they will bide their time and steadily release the money into the market when everyone is far more comfortable with the new environment. I would suggest the latter which will make for a particularly interesting second half to this year.
Harpal Singh is managing director of BrokerConveyancing.co.uk