04th December 2013

BoE versus Funding for Lending: the repercussions

What effects will the Bank of England’s decision to modify Funding for Lending have on the construction industry in future?

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London construction landscapeGovernor Mark Carney has announced that the Bank of England’s Funding for Lending scheme will be subject to an impending change in policy, with the scheme no longer able to provide for household lending.

While there are question marks over Funding for Lending’s success in reinvigorating the business finance landscape, the scheme has already had a significant impact on mortgage lending. Since the scheme was instigated the mortgage market has picked up significantly, with Funding for Lending helping banks to offer the most competitive mortgage rates for years. As a knock-on from Funding for Lending’s impact on the mortgage market, residential construction has experienced significant growth of late, with demand for new residential properties reflecting the greater availability of household mortgages.

Governor Carney, however, has said that the household lending sector can look forward to this support no longer, suggesting that the housing market is buoyant enough to get by without such assistance. ‘Although the growth in household loan volumes remains modest, activity is picking up and house price inflation appears to be gaining momentum,’ he said.

Naturally, such a decision is bound to have repercussions on the construction sector. Without the scheme’s assistance, lenders are unlikely to continue to offer such competitive mortgage rates in future, meaning that homebuyers will be less eager to splash their cash in the housing market. Fewer buyers mean less residential construction, and potentially, a slowing down of 2013’s construction boom.

It has long been assumed that while the current construction industry growth was reliant upon residential projects, growth would prove untenable in the long run. Now it seems as though the forecasters may be correct, with construction industry growth rates likely to plateau in 2014 unless there is significant pick-up in the commercial sector. Interestingly, the scheme will continue for small business lending, which could potentially meet this need for pick-up.

The end of Funding for Lending for the household mortgage market is likely to affect the construction industry in the near future, so UK contractors ought to be prepared for industry disruption in the year ahead. Our construction accounts management software solutions will help to streamline your overheads in future and keep your firm on the straight and narrow regardless of circumstances, so waste no time and contact us today.
 


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