* BoE refocuses Funding for Lending squarely on small firms
* Carney says see no risk now from housing
* No implications for Help to Buy from FLS changes -Carney
* Pound rises, house-building stocks fall
By David Milliken and Huw Jones
LONDON, Nov 28 The Bank of England moved to head
off the risk of a housing bubble in Britain on Thursday, making
a surprise announcement that it would put the brakes on a scheme
launched last year to help boost mortgage lending.
The central bank said the Funding for Lending Scheme (FLS)
would cease to offer banks incentives for mortgage lending and
instead be refocused on helping small firms to borrow. The news
caused shares in house-building firms to tumble.
Britain's economy and its housing market have staged an
unexpectedly strong turnaround since the FLS was launched by the
BoE and finance ministry in July 2012 in an effort to spur the
long-delayed recovery by unblocking credit markets.
"Given the access to credit for households now ... it would
no longer be appropriate or necessary for us to have our foot on
the accelerator. It's better to shift into neutral," BoE
Governor Mark Carney said.
Another - much-criticised - government programme to aid the
housing market, Help to Buy, remains in place.
British house prices have risen by almost 7 percent over the
past 12 months - their fastest growth in more than three years -
sparking concern about the risk of a future bubble as well as
rising living costs at a time of stagnant wages.
London prices have surged even more, partly on the back of
foreign demand, and finance minister George Osborne is widely
expected to introduce a capital gains tax on foreign-owned
property in a half-yearly budget update next week.
"We did not see an immediate threat coming from the housing
market but we are concerned about the prospective evolution of
the housing market," Carney said, adding that the BoE could take
further steps to rein in house prices if needed.
Osborne, who has made a revival of Britain's housing market
a key part of his economic plans, endorsed the decision.
STERLING RALLIES, SHARES FALL
Sterling hit a 14-month high as currency traders bet the
news moved the BoE closer to raising interest rates from a
record low of 0.5 percent, where they have been since 2009.
Economists disagreed, saying tighter regulation could reduce
the need for the BoE to raise rates to tame house prices. "By
taking such action it can actually limit the need for direct
monetary policy tightening," said James Knightley at ING.
House-building firms at one point lost more than 1 billion
pounds ($1.63 billion) in market value as their shares - which
have more than doubled in two years, helped by efforts to
kick-start the property market - fell heavily on the news.
Carney said he did not expect a big economic impact because
market funding conditions had improved over the past year and
banks were already making limited use of the FLS.
"Although the changes to the FLS may be a surprise, they are
not a shock," said Paul Smee, who heads the Council of Mortgage
Lenders, an industry group. "Lenders are well equipped to meet
their funding needs, as wholesale funding market conditions have
improved and retail deposits are robust."
Banking analysts at Bernstein Research warned that over the
longer run the change could push up mortgage rates, as the FLS
had boosted competition in Britain's mortgage market.
HELP TO BUY
The news raised questions about how the BoE will judge
another, more controversial housing scheme. Help to Buy, which
was expanded last month by the government, aids home-buyers who
lack the large deposits sought by mortgage lenders since the
That plan has been widely criticised by economists and the
opposition Labour Party for doing too little to boost
house-building and for risking a surge in prices.
The BoE is due to review Help to Buy in September, and
Carney said on Thursday it could make recommendations sooner if
it felt the scheme threatened financial stability.
Under the FLS, banks and building societies get cheap credit
from the BoE in proportion to how much they raise their lending.
Thursday's changes mean banks will be unable to claim the
cheap funding for new lending to households from Jan. 1, 2014.
Fees charged to banks for business finance would be reduced to
the lowest point on the existing scale, 0.25 percent.
Favourable capital treatment for new home loans made under
the FLS will end on Dec. 31. Five, mainly small, lenders benefit
from this at present.
Carney said the BoE would take more action to cool housing
if needed, including a possible cap on how big mortgages can be
relative to property values and borrowers' salaries. The BoE
lacks powers to force banks to follow such recommendations, but
it can require banks to hold more capital against risky lending.
Away from housing, the BoE said a stronger economic outlook
meant that risks to financial stability appeared lower.
Risks remained, however, as many countries, firms and
individuals were highly indebted and vulnerable if a sharp rise
in interest rates outpaced any increase in their incomes.