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| Funding for Lending scheme aims to cut loan costs | |
| (about 1 hour later) | |
| A multi-billion pound scheme designed to make more - and cheaper - loans and mortgages available to businesses and individuals has been outlined. | A multi-billion pound scheme designed to make more - and cheaper - loans and mortgages available to businesses and individuals has been outlined. |
| The scheme, called Funding for Lending, will see the Bank of England make low-cost funds available to banks and building societies. | The scheme, called Funding for Lending, will see the Bank of England make low-cost funds available to banks and building societies. |
| They will initially be able to borrow the equivalent of 5% of the amount they currently lend. | They will initially be able to borrow the equivalent of 5% of the amount they currently lend. |
| But if they increase their lending, they will be able to borrow more. | But if they increase their lending, they will be able to borrow more. |
| There is no upper limit on the amount financial institutions can borrow, but the first allocation is expected to be worth £80bn, which is 5% of the current stock of lending. | There is no upper limit on the amount financial institutions can borrow, but the first allocation is expected to be worth £80bn, which is 5% of the current stock of lending. |
| "For every pound of additional real economy lending an institution advances, an additional pound of access to the scheme will be permitted for that institution," the Treasury and the Bank of England said. | "For every pound of additional real economy lending an institution advances, an additional pound of access to the scheme will be permitted for that institution," the Treasury and the Bank of England said. |
| The eurozone debt crisis has damaged confidence, leading to falls in lending levels and higher borrowing costs, and this initiative aims to tackle those problems. | The eurozone debt crisis has damaged confidence, leading to falls in lending levels and higher borrowing costs, and this initiative aims to tackle those problems. |
| The interest rate on new mortgages, for example, has risen by about 0.5 percentage points in the past year. | The interest rate on new mortgages, for example, has risen by about 0.5 percentage points in the past year. |
| One mortgage broker said it was vital that cheaper funding was targeted at the homebuyers who needed it most. | |
| "It is vital that any lending is available in the loan-to-value bands that need it," said Mark Harris, chief executive of SPF Private Clients. | |
| "If funding will only be cheaper and easier for those with, say, a 50% deposit or similar level of equity, for example, there will be little improvement on the current situation," he said. | |
| Carrot and stick | |
| The Funding for Lending scheme will begin in August and will be open for 18 months. | The Funding for Lending scheme will begin in August and will be open for 18 months. |
| Banks and building societies will be able to borrow, for a fee of 0.25%, over four years. That interest rate is much lower than it currently costs them to borrow on the wholesale markets. | Banks and building societies will be able to borrow, for a fee of 0.25%, over four years. That interest rate is much lower than it currently costs them to borrow on the wholesale markets. |
| There are penalties built in to the scheme, as well as incentives. If financial institutions cut the amount they lend, the Bank of England will charge them interest up to a maximum of 1.5%. | |
| Chancellor George Osborne said he hoped it would support households and businesses "at a challenging time" . | Chancellor George Osborne said he hoped it would support households and businesses "at a challenging time" . |
| He said uncertainty caused by the eurozone crisis was "contributing to increased funding costs for UK banks and tighter credit conditions for households and businesses". | He said uncertainty caused by the eurozone crisis was "contributing to increased funding costs for UK banks and tighter credit conditions for households and businesses". |
| The scheme "will support the flow of credit to where it is needed, complementing the MPC's asset purchase programme in easing monetary policy conditions", he said in a letter to Bank of England governor Sir Mervyn King. | The scheme "will support the flow of credit to where it is needed, complementing the MPC's asset purchase programme in easing monetary policy conditions", he said in a letter to Bank of England governor Sir Mervyn King. |
| The Bank of England (BoE) will publish the amount lent to firms and households every three months. | The Bank of England (BoE) will publish the amount lent to firms and households every three months. |
| The British Chambers of Commerce (BCC) gave the scheme a cautious welcome, saying it was keen to see how the scheme worked in practice, and urged the government to go further. | The British Chambers of Commerce (BCC) gave the scheme a cautious welcome, saying it was keen to see how the scheme worked in practice, and urged the government to go further. |
| "We will be watching closely to see if this has any positive impact for new and growing businesses, which have largely been frozen out of the market for finance in recent years," said BCC policy director Adam Marshall. | "We will be watching closely to see if this has any positive impact for new and growing businesses, which have largely been frozen out of the market for finance in recent years," said BCC policy director Adam Marshall. |
| "As [the BoE and the Treasury] roll out Funding for Lending, they should be even more radical and plan for the creation of a bona fide business bank in the medium to long-term." | "As [the BoE and the Treasury] roll out Funding for Lending, they should be even more radical and plan for the creation of a bona fide business bank in the medium to long-term." |
| Do you run a small business? Have you tried to get a loan? What do you think of this scheme? Send us your comments using the form below. | Do you run a small business? Have you tried to get a loan? What do you think of this scheme? Send us your comments using the form below. |