SMEs lending declines as Help to Buy hits £1bn

Figures from the Bank of England showed overall business lending fell £2.7bn

Mark Carney, Governor of the Bank of England (Getty Images)

Lending to small businesses has declined by £700 million while the taxpayer underwrites more than £1 billion of home loans with mortgage guarantees, official figures show.

The Bank of England’s latest data on its flagship Funding for Lending scheme — now specifically targeted to encourage corporate credit — showed lending to small businesses sank by £723 million in the first three months of the year.

The lingering problems came as Treasury figures showed the second phase of its Help to Buy scheme now supporting 7,313 mortgages with a total value of £1.05 billion between October and March, providing £153 million in guarantees.

The Bank’s figures showed overall business lending fell £2.7 billion between January and March, although the figures are skewed by the withdrawal of some banks from property lending.

But the detailed data revealed that taxpayer-backed Royal Bank of Scotland grew lending to larger companies by £774 million at the expense of small businesses where its lending sank £737 million. Lloyds was the biggest lender to smaller firms — expanding loans by £536 million — followed by Santander, up £179 million.

Phil Orford, chief executive of the Forum for Private Business, said the lending drop could have been worse if not for the extension of the FLS scheme, but added: “At a time when the economy is picking up there is no doubt the figures remain slightly disappointing.”

The Bank launched the FLS in August 2012 to allow banks to access cheap funding as costs soared amid fears over a break-up of the eurozone.

The Help to Buy data revealed the mortgage guarantee scheme gaining most traction outside London’s rampant housing market, with the capital accounting for just 385 or 5 per cent of the 7,313 completions. The lion’s share of these — 342 — were first-time buyers spending an average £288,390.

Bank Governor Mark Carney is keeping a wary eye on the scheme but overall, the figures show that 93 per cent of properties bought were worth £250,000 or less.

Council of Mortgage Lenders director general Paul Smee said: “The policy appears to be reaching the geographical parts of the market where recovery has been weakest.”