2012 saw an expansion in mortgage lending, which rose by approximately £2bn to £143bn. While the Council of Mortgage Lenders expects the value to increase to £156bn for 2013 the new lending has failed to reach credit starved businesses.
According to the Bank of England (BoE), business lending contracted by around £4bn in the three months to November when compared to the same period for 2011. The BoE indicated that this was likely the result of businesses attempting to reduce their debt burden. However, it has been a concern that banks chose to reduce business lending because of a drive to improve the health of their balance sheets and are averse to the potential risks involved.
Still, the BoE expects that the level of lending to SME’s will improve throughout 2013 as it remains positive about its Funding for Lending scheme – banks can borrow a percentage of what they lend at lower interest rates from the BoE.