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Boe: £18.8Bn Drawdown In Final Fls Quarter

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Apologies if this has been covered elsewhere. These stories ran early this week but my internet access was patchy so I couldn't post then.

It looks as though UK lenders took on a lot of cash in the last quarter of the FLS (which closed for mortgage lending at the end of 2013). This cash should fund their immediate needs but we might expect their funding costs (and hence offered borrowing rates) to rise once they have lent it all. Here are two articles from trade journals on the subject.

http://www.mortgagei...FLS_quarter.htm

http://www.mortgages...2007404.article

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http://www.mindfulmoney.co.uk/wp/shaun-richards/the-clearest-effects-of-funding-for-lending-have-been-on-mortgage-lending-and-savers/

'

The Bank of England

Yesterday also saw the release of the figures for the Funding for Lending Scheme of the Bank of England which I have christened funding for mortgage lending and a backdoor bank subsidy. How has the subsidy gone?

That took outstanding aggregate drawings in the first part of the Scheme to £41.9bn.

So the banks have received plenty of liquidity but at what cost or price?

The vast majority of outstanding drawings were made by those participants that have achieved positive net lending over the 18-month reference period from 30 June 2012 to the end of 2013, which will therefore pay the lowest fee of 0.25% per year on the amount borrowed.

Okay so apparently most of it has been at 0.75% per annum. I guess already there is some wailing and gnashing of teeth as readers with borrowings use the gap between this and what they are paying to calculate a wide banking margin. In fact for those wondering about the margins the Bank of England helpfully pointed them out.

There are some substantial margins here which remind me of one of the first themes of this blog which was the gap between official and unofficial interest-rates. If we look into the detail for an interest-rate which has clearly been driven lower by FLS here it is.

the rate for households’ new time deposits decreased by 3bps to 1.55%.

You see in the helpful charts provided we see that this has nearly halved over the FLS period as it was over 3%. There has been a drift lower in credit card rates and mortgages but somewhat oddly unsecured narrowing rates shot higher as we moved into the early part of 2013. So we conclude that this scheme was been yet another subsidy for our banks and wonder exactly how Royal Bank of Scotland managed to lose £8.2 billion in such a favourable environment?

If we move to how much the scheme has supported the UK economy we see that it is not only the pricing area where it has been lacking as the volume or quantity has been a disappointment too.

Cumulative net lending by FLS participants was £10.3bn over the 18 months from 2012 Q3 to 2013 Q4

So for every £4 we give to the banks they lend on not quite £1? Still presumably they have been backing UK industry?

Credit conditions for small and medium-sized enterprises (SMEs) have also improved, but to a lesser extent than for households,

So that’s a no then! Or as the Bank of England’s own lending data points out.

Net lending – defined as gross lending minus repayments – to large businesses was -£0.5 billion in January. Net lending to SMEs was -£0.4 billion in January.

This is part of what has become a sad but familiar trend.

loans (including overdrafts) to small and medium-sized enterprises (SMEs) decreased by £0.3 billion, compared to the average monthly decrease of £0.5 billion over the previous six months. The twelve-month growth rate was -2.5%.

Apparently the solution is to give even more cheap funding to our banks.

These Initial Allowances sum to £32.7bn, of which more than £17bn reflects ten times the positive net lending to SMEs by those participants receiving an Initial Allowance.

Also all of this lending will be at 0.75% per annum so there will be no excuses about the price of the cash. I hope that this time around FLS 2.0 or as it is officially called the “extension” but hype like this does not help.

many participants have been using FLS funding to expand their net lending to SMEs

As the Bank of England’s own figures show this is not true for the overall picture. Of course there is also the issue that if the scheme was originally intended to help businesses why it did not operate in this manner from the start. Whereas the accumulation of liquidity does instead seem to have turned up elsewhere.

The number of loan approvals for house purchase was 76,947 in January, compared to the average of 67,461 over the previous six months……Lending secured on dwellings increased by £1.4 billion in January, compared to the average monthly increase of £1.2 billion over the previous six months…..Consumer credit increased by £0.7 billion in January.'

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In other news the average FTB deposit and LTV have climbed to £27,500 and 82.3%. Respectively, the highest ever recorded. :o

http://www.mortgageintroducer.com/ccstory/248939/5/Average_FTB_deposit_hits_%C2%A327,500.htm

David Newnes, director of estate agents Your Move and Reeds Rains, part of LSL Property Services group, said: “While the property market has been firing forwards, wage growth has been stuck in the mud of the economic recovery. Prices for first-time buyer properties have been marching steadily upwards, and have now reached a new record. “The property market has remained accessible to first-time buyers, because an increase in high LTV lending has offset rising prices. This is enabling more first-time buyers to enter the market.”

High LTV lending is helping first-time buyers enter the market, as prices – and deposits – increase. The average first-time buyer LTV has risen 2.5% over the past year to 82.3% – the highest on record.

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http://www.mindfulmoney.co.uk/wp/shaun-richards/the-clearest-effects-of-funding-for-lending-have-been-on-mortgage-lending-and-savers/

Cumulative net lending by FLS participants was £10.3bn over the 18 months from 2012 Q3 to 2013 Q4

So for every £4 we give to the banks they lend on not quite £1? Still presumably they have been backing UK industry?

Credit conditions for small and medium-sized enterprises (SMEs) have also improved, but to a lesser extent than for households,

So that’s a no then! Or as the Bank of England’s own lending data points out.

Net lending – defined as gross lending minus repayments – to large businesses was -£0.5 billion in January. Net lending to SMEs was -£0.4 billion in January.

This is part of what has become a sad but familiar trend.

loans (including overdrafts) to small and medium-sized enterprises (SMEs) decreased by £0.3 billion, compared to the average monthly decrease of £0.5 billion over the previous six months. The twelve-month growth rate was -2.5%.

Apparently the solution is to give even more cheap funding to our banks.

These Initial Allowances sum to £32.7bn, of which more than £17bn reflects ten times the positive net lending to SMEs by those participants receiving an Initial Allowance.

The BoE is just using Funding for Lending to plug the balance sheet for all the hopelessly insolvent banks. They have been carrying assets (like loans in the Eurozone) on their balance sheet at full value pretending they will never have to write them down. The extra taxpayer money lets the extend and pretend model keep going. Banks regain capital and get closer to the higher ratios they need by 2018 and what little they lend out is at enormous margin so bonuses keep going so everyone is complicit.

Hopefully, like all central planning, its too smart for its own good and we get an unlikely event occurring which this "keep the rich richer" mentality.

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Mutuals propped up by Treasury’s cheap loans
BUILDING societies and other mutuals pocketed nearly half of the cheap funding provided by the Bank of England last year, raising fears over their ability to lend now the scheme has been scrapped.
They drew down 47% of the £28bn advanced under the Funding for Lending Scheme (FLS) in 2013, analysis of the Bank’s figures reveals.

Above Sunday Times 04.05.2014.

Bit more detail here, in the article preview, including re Co-op Bank. http://www.thesundaytimes.co.uk/sto/business/Finance/article1406864.ece

No longer got the yesterday's paper, Think there was something about banks having drawn down a lot, but one or two having already paid most of it back.

I'm relying on buyers falling away from the market, regardless of the push by lenders to get them to borrow. Because of the house prices, and circumstances of individuals wanting a life beyond debt, fearful of such debt, against such asking prices.

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Mutuals propped up by Treasury’s cheap loans
BUILDING societies and other mutuals pocketed nearly half of the cheap funding provided by the Bank of England last year, raising fears over their ability to lend now the scheme has been scrapped.
They drew down 47% of the £28bn advanced under the Funding for Lending Scheme (FLS) in 2013, analysis of the Bank’s figures reveals.

Offer decent interest rates to savers then !!!!!

Does anyone think what we are seeing is corrupt/fraud/illegal/great or insane ?

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It will be interesting to see what happens next, and we will have to wait until the impact of the end of FLS feeds through into mortgage pricing, but this is the story as I understand it...

2+year+fixes+-+what+next.png

I do buy the argument that policy rate won't be back to 4% in the immediate future and that a sharp run from say 0.5% to 2% is extremely unlikely in the immediate future but I do think that if the government and the Bank of England merely hold their present course then a 150 bps run up of the 2 year fixed rate from 2.5% to above 4% within 12-18 months is almost a dead cert.

I also buy the argument that 'prices are set at the margins' in the sense that in UK housing it is often the most bullish buyer willing to take on the most balance sheet risk that sets the price for everyone else. In light of this, the precipitous decline in the 2 year fixed rate since the crisis is at least partially explanatory of the run up of prices in London. The 2003 Miles report confirmed what experience would suggest - punters take no interest at all in the likely future path of interest rates - they just buy on 'affordability' terms on day one - i.e. the just look at the size of the mortgage payment on day one.

Osborne has his 'nice little boom' alright - but does anyone still believe that we've seen the end of boom and bust? And if we haven't what comes next?

I think that over the next 12-18 months we are going to see the shape of the next chapter of the story. For the hpcer who wanted to see housebuilding, regulation of BTL and house prices falling to a level that meant that you didn't have to saddle yourself with absolutely shocking levels of debt to buy a hovel the 2008-2014 period has actually turned out to be something of a nightmare.

The failure to extend the mortgage guarantee component of HTB, the end of FLS for residential mortgages, the MMR and the Fed continuing to taper all indicate that things have turned a corner already in terms of the direction of travel of the powers that be. None of this informs the thinking of the punters setting prices, who just see a teaser rate and rising house prices today and bid away like crazy. Watch this space, I guess.

[Edit: typo on one of the annotation to the graph - the yield fell FROM 4%..]

Edited by ChairmanOfTheBored

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It will be interesting to see what happens next, and we will have to wait until the impact of the end of FLS feeds through into mortgage pricing, but this is the story as I understand it...

2+year+fixes+-+what+next.png

I do buy the argument that policy rate won't be back to 4% in the immediate future and that a sharp run from say 0.5% to 2% is extremely unlikely in the immediate future but I do think that if the government and the Bank of England merely hold their present course then a 150 bps run up of the 2 year fixed rate from 2.5% to above 4% within 12-18 months is almost a dead cert.

I also buy the argument that 'prices are set at the margins' in the sense that in UK housing it is often the most bullish buyer willing to take on the most balance sheet risk that sets the price for everyone else. In light of this, the precipitous decline in the 2 year fixed rate since the crisis is at least partially explanatory of the run up of prices in London. The 2003 Miles report confirmed what experience would suggest - punters take no interest at all in the likely future path of interest rates - they just buy on 'affordability' terms on day one - i.e. the just look at the size of the mortgage payment on day one.

Osborne has his 'nice little boom' alright - but does anyone still believe that we've seen the end of boom and bust? And if we haven't what comes next?

I think that over the next 12-18 months we are going to see the shape of the next chapter of the story. For the hpcer who wanted to see housebuilding, regulation of BTL and house prices falling to a level that meant that you didn't have to saddle yourself with absolutely shocking levels of debt to buy a hovel the 2008-2014 period has actually turned out to be something of a nightmare.

The failure to extend the mortgage guarantee component of HTB, the end of FLS for residential mortgages, the MMR and the Fed continuing to taper all indicate that things have turned a corner already in terms of the direction of travel of the powers that be. None of this informs the thinking of the punters setting prices, who just see a teaser rate and rising house prices today and bid away like crazy. Watch this space, I guess.

[Edit: typo on one of the annotation to the graph - the yield fell FROM 4%..]

In other words...shameful theft from saver sand idiots buying houses to suit/protect/save the bankers.

I voted tory because they were meant to fix the banks, not "fix" the market.

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In other words...shameful theft from saver sand idiots buying houses to suit/protect/save the bankers.

I voted tory because they were meant to fix the banks, not "fix" the market.

I'm guessing that neither you nor I were directly involved in putting the banks in a position that they were under-capitalised, but once they were and their luck ran out it was pretty clear that the costs of re-capitalising them were going to fall on us one way or another. It's not to my taste that the cretins that run them have been able to sustain their remuneration but I suspect that the material cost going forward is not going to be emoluments, it is going to be writing off a mountain of crappy loans and paying a mountain of fines arising from the thoroughgoing perfidy of the entourage of cozening grifters.

I recall that in the 1980s we were very proud of the contribution of invisibles to our balance of trade. Surely the writing was on the wall then and there.

Edited by ChairmanOfTheBored

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Great main-post #9 COTB.

I'm guessing that neither you nor I were directly involved in putting the banks in a position that they were under-capitalised, but once they were and their luck ran out it was pretty clear that the costs of re-capitalising them were going to fall on us one way or another. It's not to my taste that the cretins that run them have been able to sustain their remuneration but I suspect that the material cost going forward is not going to be emoluments, it is going to be writing off a mountain of crappy loans and paying a mountain of fines arising from the thoroughgoing perfidy of the entourage of cozening grifters.

I recall that in the 1980s we were very proud of the contribution of invisibles to our balance of trade. Surely the writing was on the wall then and there.

Not necessarily. One of the retiring main guys (FSA?) said recently, according to a post on HPC quoting a snippet from a newspaper (zugzwang?) - that in retrospect, perhaps they should have gone the way of massive QE (as we've already had) to support the economy and banks whilst allow the deleveraging / breaking up of overleveraged companies to happen. New money to come in. Instead of to push new debt, chase more growth, and more of the same that led to the crunch. Or words very similar to that effect.

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The BoE is just using Funding for Lending to plug the balance sheet for all the hopelessly insolvent banks. They have been carrying assets (like loans in the Eurozone) on their balance sheet at full value pretending they will never have to write them down. The extra taxpayer money lets the extend and pretend model keep going. Banks regain capital and get closer to the higher ratios they need by 2018 and what little they lend out is at enormous margin so bonuses keep going so everyone is complicit.

Hopefully, like all central planning, its too smart for its own good and we get an unlikely event occurring which this "keep the rich richer" mentality.

Was it to do anything else?

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