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FLS will drive on buy-to-let lending and housing market – economist

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25/04/2013
Buy-to-let landlords and the housing market could reap the benefits of the Funding for Lending extension, Berenberg Bank
FLS will drive on buy-to-let lending and housing market – economist

Under the extension, Robert Wood suggested banks might consider it “a no-brainer” to lend to landlord businesses – making the most of the SME incentives while providing lower risk loans.

He said while the extension provided incentives for lending to small and medium-sized enterprises, banks had so far shown a preference for mortgages because they were lower risk.

Wood described the incentives as generous: “This additional extension to the scheme will probably lead to more cheap funding being available.

“Some of that will have to go to SMEs – some of these could be property companies – but any benefits banks get in terms of much cheaper funding will probably flow into the housing market as well. That’s where we will see the maximum impact.”

He explained: “A small and medium sized enterprise is defined by the Bank of England as an incorporated company with a turnover of less than £25m or an unincorporated business. That doesn’t rule out small landlord-type businesses qualifying for this funding.

“Even setting aside that part of the scheme, because banks seem to prefer to lend out this cheap funding on mortgages rather than small businesses, any additional funding benefit they end up getting through FLS could heavily flow back into the housing market anyway.”

Non-bank buy-to-let lenders such as Paragon could also benefit indirectly from the changes, he said, as lending by banks to mortgage corporations will now be eligible under FLS.

According to extension rules, for every £1 a bank or building society lends to SMEs in 2013, it may access £10 of interest-free funding the following year.

 

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