Bank of England launched Funding for Lending scheme to incentivise banks to lend to UK households – but the reverse is happening
This month, to much fanfare, the Bank of England and Treasury launched the £80bn Funding for Lending scheme, to “incentivise banks and building societies to boost their lending to UK households and non-financial companies”. The sceptics wondered if it would better the earlier Project Merlin, seen as having failed to channel cash to businesses and households.
They were right to be sceptical. Funding for Lending lets the banks borrow billions at just 0.25% interest to prod them to loosen the purse strings, especially for first-time buyers who face huge hurdles when finding loans.
Yet the reverse seems to be happening. Santander has stunned the mortgage industry by raising its standard variable rate from 4.24% to 4.74%. It won’t say how many customers are affected, although it’s understood to be up to 300,000. Someone with a £150,000 mortgage will pay £44 extra every month.
The bank says the cost of providing mortgages is rising, while the rates it has to pay to be competitive on savings has also been increasing. Really? Last year Santander’s main cash Isa was paying 3.15%. This year it is paying 3%. And have mortgage-funding costs really risen? The Libor rate, which indicates how much it costs for a bank to borrow off other banks, has actually been coming down despite the fixing scandal.
Mortgage brokers call Santander’s move straightforward profiteering, with the bank safe in the knowledge that many, if not most, of its SVR customers will have nowhere else to go. They’re probably right.
The government is pinning its hopes for economic recovery partly on a revival in Britain’s housebuilding sector. But how, with interest rates rising rather than falling, are potential buyers going to finance these new homes?