It seems that the main effect of the Funding for Lending scheme so far is that it has made access to finance in the property market easier to come by!
My first reaction to this was why has more not been done to channel much needed finance into the struggling SME market place?
Commentators don’t often agree, but in this case everyone is pretty much unanimous that the UK economy is flat lining at best, and that access to finance has been extremely difficult to come by since the Global Financial crisis hit in 2008. (That is, of course, unless you have 10 years of rising profits, a significant balance sheet and are prepared to pledge as security not only your own house, but also your next door neighbour’s!).
Reflections
I have since taken some time to reflect and, whilst this process was going on, noticed that house prices were stabilising, and now rising. Not in the same way as the heady days of 2005-7, but rising nonetheless.
I tried to be circumspect and view these pricing changes as simply an effect of a dynamic market; but nonetheless, the underlying emotions were of satisfaction, a slight easing of concern about the ongoing economic travails we seem to have been suffering for so long and, most importantly, an increase in confidence. My net worth was suddenly no longer perishing on the vine, but growing with the onset of spring.
There is an old saying that an Englishman’s home is his castle. I think there is a lot of truth in this. We have limited space in the UK with a growing population. It is only natural that we all want to own a part of it and see it grow in value.
I am not sure if the government and the treasury got together and said let’s do something to increase the value of property, business lending will follow, or if this is just an unintended consequence, but that is what I believe is starting to happen.
If we just look at the progression here, it does fit together:
2005-2007: House prices rising exponentially; business confidence very high
Late 2007: Northern Rock runs out of money; confidence falters
2008: Global financial crisis. Lehman allowed to fail; confidence plummets
2008-2012: Bank failures. Sovereign failures. Global downturn. House prices fall by 25%. Confidence non-existent. Business finance for the SME very difficult to come by even with security. Potential business finance customers who may have previously pledged their house, now find they have reduced or no equity!
2012: Funding for Lending scheme introduced on the basis that it will increase the flow of business finance!
2013: Mortgage finance more easily available via FLS
2013: Government announce Help to Buy schemes for first time buyers (and those already on the housing ladder!)
2013: House prices stabilise and start to increase
2014: If house prices continue to increase, albeit at low levels compared to the past 20 years, will we all feel a bit more confident and slowly use that increasing equity to invest more in our businesses, and slowly return to growth?
Final thoughts:
I think there is every chance this could happen. Growth is likely to be much slower as a result of our dependence on the global economy and that we can’t deflate and export our way out of problems as has happened in the past. However if domestic consumption increases on the back of this increased confidence, it does represent 60% of our economy, we might just see some growth returning as an unintended consequence of the Funding for Lending scheme!!
WARNING!!!
It is worth making the point that this possible cycle of increased availability of mortgage finance, increasing house prices, increased confidence, growing economy, increased debts has a familiar ring to it…
Déjà vu all over again.
Finding alternative funding
If you are having bank problems and/or need replacement funding, please contact us. We are specialists in this field and can hopefully point you in the right direction.
As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
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