The FCA has recently announced rules which will allow banks to hold less capital reserves and a broader variety of assets in their capital buffers. The reserves protect banks from over-lending and the greater flexibility will allow lenders participating in the scheme to grant a greater volume of finance including residential mortgages.
The standard capital adequacy rules require lenders to hold 10% of their assets in reserve but the new rules will now enable them to lend under the scheme aimed at increasing lending to first time buyers and business, without them having to increase the capital on reserve. This is an innovative development and will likely increase the lending under the scheme which has not got off to a great start since its introduction a few months ago.
The FCA' has also given an indication that banks will be given individual capital ratios in order to prevent significant deleveraging of balance sheets as the new industry wide targets take effect. .The targets come into force at end of 2013 and will replace the risk-adjusted core ratio of 10% of assets. The concern is to avoid any rapid deleveraging which could harm activity in the wider economy.
There continues to be concern in the market with a further report that gross mortgage lending was down in August, probably due to weak remortgaging as home purchase did in fact reach the highest figure for 2 years.
The Council of Mortgage Lenders (CML) reports that 55,300 mortgages were completed for house purchase in August with £8.4bn of borrowing and this compares to 49,500 in July 2011 and 49,900 in August 2011.
The level of remortgaging has however fallen and are down 9 % compared with July 2011 and 33% when August is compared with August of last year. Paul Smee at the CML states that: "House purchase lending showed an encouraging rise in August but it's unclear whether this reflects just the unravelling of previous factors such as the Jubilee and the Olympic Games, or a shift in the underlying picture. We will wait and see whether schemes such as Funding for Lending and NewBuy provide a further boost to the market in coming months."