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Bank Of England To Curb FLS Support For Households

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The Bank of England will scale back incentives that it provides to banks for lending to households, in a bid to curb mortgage lending and divert credit to businesses.

The Funding for Lending Scheme will continue to provide support for lending to businesses in 2014, with incentives in the scheme skewed heavily towards lending to small and medium-sized enterprises, the bank said in a statement on Thursday.

The scheme was originally launched in August last year, giving incentives to banks to increase lending to households and businesses. The first phase of the program will end on January 2014.

Lending to smaller businesses in 2014 will continue to be encouraged by allowing banks to draw GBP 5 in the scheme for every GBP 1 of net lending to SMEs. But household lending next year will no longer earn any such additional borrowing allowances, the central bank said today.

Supporting mortgage lending was "no longer necessary", BoE Governor Mark Carney said. "We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market," he told reporters.

"The concern is where this could go," Carney added. "We definitely see some short-term momentum."

The bank also signaled that it is prepared to take further action to cool housing market, if needed.

The announcement is likely to subside fears of an incipient housing bubble as property prices continue to increase amid easy credit and government schemes.

"This is a hugely sensible and justifiable move taken by the Bank of England," said IHS Global Insight's Chief UK Economist Howard Archer said.

Chancellor George Osborne said, "Small firms are the lifeblood of our economy."

"That's why we're reforming the banks, introducing the employment allowance and now focusing the Funding for Lending Scheme to support them," he said.

Further, the new changes will have no implications for HM Government's Help to Buy scheme.

Earlier in the day, Carney wrote in a letter to the Treasury Committee Chairman Andrew Tyrie saying that the Financial Policy Committee only has the power to advise the British government on the Help to Buy scheme.

Carney clarified that the BoE does not have a veto on the program. But it can make recommendations at any time.

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