Mortgage blog: Why Funding for Lending is only helping those with large deposits

Posted 18 September 2013

Over the past year, the government's Funding for Lending scheme has been credited with bringing down the cost of borrowing for thousands of people. Mortgage rates have reached record-breaking levels with dozens of five-year fixed-rate deals now available at under 3%.

However, research from a leading expert believes that the government scheme has only produced limited benefits for borrowers with smaller deposits - precisely the people it was designed to assist. Instead, the main benefits have been to high-value borrowers with a large deposit who now have a wider choice of cheap deals.

Funding for Lending ‘helping the rich remortgage'

The government's Funding for Lending scheme has allowed banks and building societies to access very cheap money in return for increasing the amount of loans to homeowners and small businesses. Over recent months mortgage deals have hit record lows with the West Bromwich Building Society recently launching a two-year fixed-rate mortgage at just 1.48%.

However, Moneyfacts has tracked the number and type of mortgages on the market and discovered that while the scheme has resulted in significant benefits for borrowers with a large deposit it hasn't provided a wide choice of deals to other consumers.

The data analysts have compared the current mortgage market with the spring of 2009 before the government began to intervene in the market. Speaking to Radio 4, Sylvia Waycot from Moneyfacts says that although there are more mortgages on offer now, they are very much targeted at the wealthy, not the struggling.

She said: "If you had a 40% deposit in March 2009, there were 272 different mortgage products that you could have chose from to take your mortgage. Since Funding for Lending came in, it rose to 472 and it's now 544. That market is the market that the banks and building societies are feeling more secure in. If you are a first-time buyer and were looking for a 95% mortgage in March 2009, there were only three on the market that you could choose from. Now there are 54.

Paul Lewis from the BBC's Moneybox show agrees, saying that high loan-to-value deals have gone from "virtually non-existent to scarce". He added that "the Funding for Lending Scheme seems to be helping the rich re-mortgage rather than... first-time buyers."

Keith Osborne, editor of adds: "I have been saying for months that while the Funding for Lending scheme has been pushing down mortgage rates it hasn't resulted in a much wider choice of deals for first-time buyers. People with a large deposit have found it cheaper to borrow while consumers looking for 90% or 95% loans continue to struggle."

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