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| Version 4 | Version 5 |
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| Mortgage lending support scheme to be scaled back | Mortgage lending support scheme to be scaled back |
| (35 minutes later) | |
| A government-backed scheme to boost mortgage loans is to be scaled back, focusing instead on business lending. | A government-backed scheme to boost mortgage loans is to be scaled back, focusing instead on business lending. |
| The Funding for Lending Scheme (FLS), launched last year, will no longer be aimed at householders, announced the Bank of England's governor Mark Carney on Thursday. | The Funding for Lending Scheme (FLS), launched last year, will no longer be aimed at householders, announced the Bank of England's governor Mark Carney on Thursday. |
| An overheated housing market would be a risk to the economy, he said, adding that prices are rising in many regions. | An overheated housing market would be a risk to the economy, he said, adding that prices are rising in many regions. |
| Supporting mortgage lending was "no longer necessary", he said. | Supporting mortgage lending was "no longer necessary", he said. |
| However, speaking about another mortgage scheme, Help To Buy, Mr Carney added that it was "still early days". | However, speaking about another mortgage scheme, Help To Buy, Mr Carney added that it was "still early days". |
| Funding for Lending will be refocused on businesses from January 2014, the governor said. | Funding for Lending will be refocused on businesses from January 2014, the governor said. |
| 'Silver bullet'? | 'Silver bullet'? |
| Chancellor George Osborne said: "Small firms are the lifeblood of our economy. That's why we're reforming the banks, introducing the employment allowance and now focusing the Funding for Lending Scheme to support them." | Chancellor George Osborne said: "Small firms are the lifeblood of our economy. That's why we're reforming the banks, introducing the employment allowance and now focusing the Funding for Lending Scheme to support them." |
| Funding for Lending aimed to provide up to £60bn to banks and building societies so long as that money was lent to businesses and individuals. | Funding for Lending aimed to provide up to £60bn to banks and building societies so long as that money was lent to businesses and individuals. |
| Mr Carney said: "The changes announced today refocus the Funding for Lending scheme where it is most needed - to underpin the supply of credit to small businesses over the next year - without providing further broad support to household lending that is no longer needed." | Mr Carney said: "The changes announced today refocus the Funding for Lending scheme where it is most needed - to underpin the supply of credit to small businesses over the next year - without providing further broad support to household lending that is no longer needed." |
| He added: "Since the FLS was launched it has contributed to a substantial fall in bank funding cost, this has fed through to a significant improvement in household credit conditions. Given this success there is no longer a need for FLS to provide further broad support to household lending". | He added: "Since the FLS was launched it has contributed to a substantial fall in bank funding cost, this has fed through to a significant improvement in household credit conditions. Given this success there is no longer a need for FLS to provide further broad support to household lending". |
| Business Secretary Vince Cable told the BBC that while he believed that the decision to re-focus the scheme away from households would improve borrowing prospects for small and medium sized companies, it was "not a silver bullet". | Business Secretary Vince Cable told the BBC that while he believed that the decision to re-focus the scheme away from households would improve borrowing prospects for small and medium sized companies, it was "not a silver bullet". |
| "One decision isn't going to change quite a deep structural problem. But it is certainly a move in the right direction. As far as small businesses are concerned, there are a whole lot of different issues here." | "One decision isn't going to change quite a deep structural problem. But it is certainly a move in the right direction. As far as small businesses are concerned, there are a whole lot of different issues here." |
| 'Not a shock' | 'Not a shock' |
| The shadow financial secretary to the Treasury, Labour's Cathy Jamieson, said that the move was "an admission that the Funding for Lending scheme has badly failed Britain's businesses". | |
| She added that many homeowners might be concerned that the removal of the household aspect of FLS could lead to a rise in mortgage interest rates. | |
| However, in response to the news, the Council of Mortgage Lenders said that the decision reflected the "improvement in funding market conditions". | |
| The group's director-general, Paul Smee, said: "Although the changes to the FLS may be a surprise, they are not a shock. Mortgage lenders are well equipped to meet their funding needs, as wholesale funding market conditions have improved and retail deposits are robust." | The group's director-general, Paul Smee, said: "Although the changes to the FLS may be a surprise, they are not a shock. Mortgage lenders are well equipped to meet their funding needs, as wholesale funding market conditions have improved and retail deposits are robust." |
| Mr Carney added that he saw a higher risk to financial stability if there were further rapid rises in house prices. He added that there were signs of house price growth picking up beyond London. | |
| Robert Wood, UK economist at Berenberg Bank, told the BBC: "The Bank needs to take away some of that extra help it has been giving, and this will help to slow down price rises. | |
| "This is the first small step we will see in a continuing effort to move banks away from mortgage lending and towards business lending." | |
| Tougher tests | Tougher tests |
| In addition to the changes to FLS, Mr Carney also said that tougher affordability tests might be required in the future, for those taking out mortgages. | |
| From April 2014, banks will already conduct new affordability assessments, which are being used in the Help to Buy scheme. | From April 2014, banks will already conduct new affordability assessments, which are being used in the Help to Buy scheme. |
| Currently, banks and building societies look at the predictions for interest rates, to see whether home-buyers could still afford their monthly repayments if interest rates go up. | Currently, banks and building societies look at the predictions for interest rates, to see whether home-buyers could still afford their monthly repayments if interest rates go up. |
| At the moment, those predictions suggest that interest rates could rise to 3% within the next five years. | At the moment, those predictions suggest that interest rates could rise to 3% within the next five years. |
| However, Mark Carney said that this could be an under-estimate if the the economy suffered from another global shock, which would be likely to push up interest rates more quickly. | |
| Concerns about a potential property market bubble have been growing. Earlier this month, a committee of MPs asked the Bank of England to clarify its role in policing the Help to Buy scheme. | |
| The Treasury Committee said that the "scope and limits" of the Bank's role were not clear. | The Treasury Committee said that the "scope and limits" of the Bank's role were not clear. |
| Replying to the committee's chairman, Mr Carney said the Bank's role was purely advisory. |