Mortgage market benefits from Funding for Lending MORTGAGE availability surged in the final quarter of last year in the clearest sign yet that the Bank of England and Treasury's Funding for Lending Scheme (FLS) is working. Banks and building societies increased lending to borrowers with smaller deposits, and said they were planning to increase their maximum loan-to-values. The Bank's latest credit conditions survey also showed that banks were keen to expand corporate loans after the supply of this type of credit rose late last year at the fastest pace since records began in 2007. Overall, the report showed that banks and building societies expect to ramp up lending in the first three months of 2013 - confirming analysts" views that the mortgage lending sector is recovering faster than small business lending. "Demand for mortgages is also being lifted in part by falling spreads [profit margins] on products," said David Tinsley, UK economist at BNP Paribas. Analysts said the survey will reassure the Bank and the government that the FLS, launched in August to boost the flow of credit, is gaining ground. Lending to businesses is also improving, with the first increase in credit availability for a year. However, large and medium-sized firms appear to be benefiting most. By contrast banks reported only a slight increase in lending to small firms and demand falling. Banks have said small firms have been cutting debt rather than taking on more. Separate official data, also released yesterday, showed a 0.2 per cent fall in labour productivity in the third quarter of 2012, with a related measure sinking to its lowest level since 2005. Some Bank officials have said weak productivity may be partly to do with a lack of credit to enable firms to shift into more profitable lines of business.