A leading financial services figure has urged the Government to re-think a proposed extension to the Funding for Lending Scheme (FLS), which he says has ‘failed on virtually every level’.
Financial services firm True Potential says the FLS has only had a marginal effect on mortgage lending rates – latest figures* show mortgage lending in February 2013 was down to the lowest level since July 2012 and down 6% year-on-year – but says the scheme has inflicted considerable collateral damage on the savings market.
Mark Henderson, senior partner at True Potential, said the FLS had caused interest rates to plummet and created a chaotic savings environment in which many investors’ funds, particularly in cash ISAs, were losing value.
Yet during the UK Budget 2013 this month, Chancellor George Osborne announced plans to extend the scheme – a move which Henderson says will do nothing to help plug the UK’s savings gap.
“The announcement in the Budget to extend the FLS is one which, with the latest lending figures in mind, surely has to be re-examined and withdrawn,” he said.
“FLS might have provided a slight boost to mortgage borrowing, but the collateral damage it has created for savers is devastating. It is great for the banks, but terrible for savers and has failed on virtually every other level.
“The scheme is emblematic of the problems that have plunged this country into the situation in which we now find ourselves – over our heads in debt and faced with a massive savings gap.
“Borrowing is being encouraged while savers are punished. It’s illogical and will only contribute to the savings deficit that we are facing.”
Henderson said the one bright spot was that stocks and shares-based funds could be stimulated by the failure of cash ISAs.
“There is no future in cash, nor will there be for many years – we can only hope that people begin to realise this and start to inject savings into funds that will help boost the economy and plug the rapidly-widening savings gap,” he added.
* British Bankers' Association (BBA), March 2013