Bank of England to Scale Back Mortgage Lending Scheme

The Bank of England announced on Thursday that it is making adjustments to its Funding for Lending Scheme, which was launched last year to stimulate mortgage lending, due to “evolving risks” to financial stability.

Governor Mark Carney stated that the scheme will no longer focus on supporting house buyers while presenting the bank’s semi-annual Financial Stability Report. He noted that an overheated housing market poses a risk to the economy and emphasized that support for mortgage lending is “no longer necessary.”

The bank indicated that house-price inflation is on the rise, warning that financial stability may be jeopardized if there is a rapid surge in house prices and consumer debt levels. In a letter to Chancellor George Osborne, Carney remarked, “Although the growth in household loan volumes remains modest, activity is picking up and house price inflation appears to be gaining momentum.”

The decision to shift the focus of the Funding for Lending Scheme away from mortgage lending was made in collaboration with Chancellor Osborne, Carney confirmed. From January 2014, the scheme will solely target businesses.

Addressing the government’s Help to Buy Scheme, which offers subsidies to home buyers for deposits, Carney described the situation as “still early days,” while noting that the bank could intervene “at any time.”

The bank assured that these changes would not have a significant effect on the outlook of the monetary policy committee. Carney stated that the measures introduced would foster a positive evolution of the housing market, enhancing financial stability and, in turn, the committee’s capacity to provide exceptional monetary support to the broader U.K. economy for as long as necessary.

Regarding the economy overall, the bank observed that risks to financial stability seem to have lessened due to an improved growth outlook.