Funding for Lending Scheme - what we can expect

Hardly a day goes by without a mortgage lender announcing an improvement to its mortgage rates. This increased level of competition has on occasion seen some 2 year fixed deals drop just below 2% and 5 year deals below 3%.

This improvement in lender appetite has certainly been assisted by the Funding for Lending Scheme (FLS). The FLS was announced by the Bank of England in July and launched in August to provide a source of cheap funding for lenders. Since then lender uptake has grown and 30 lenders have at the last count taken advantage of the scheme.

As participation has picked up the rates on offer have improved across the board and borrowers have not been slow to notice. The Council of Mortgage Lenders reported that mortgage activity for both purchase and remortgage had picked up in its latest lending figures.

As rates have improved and a backdrop of some lenders increasing their standard variable rates earlier in the year there is certainly an opportunity for mortgage borrowers to cut their costs. The majority are likely to be tempted by the stability that a fixed rate deal will offer.

The Bank of England Monetary Policy Committee last week put to rest hopes for any further cut in Base Rate, strengthening the appeal of fixed rates to protect against future rises. As the margin between the available interest rate on a fixed deal and a corresponding tracker rate narrows and in some cases disappears altogether, the decision starts to become easier.

Although the FLS has been a contributory factor in producing some of the record low rates on offer there has been criticism that these remain focused on borrowers with big deposits. As the level of competition for low risk borrowers intensifies my hope is it will start to feed up to higher loan to value deals, as lenders seek to attract borrowers in market sectors where there is still more margin.

Borrowers should certainly take another look at their current mortgage deal to see if they could take advantage of the beneficial impact of Funding for Lending. They should shop around to see if they can save some money and ensure that they are not missing out on some of the keenest mortgage rates there’s ever been.



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