Funding for Lending

 

Today it was announced that there is an £80 billion lending scheme called Funding for Lending that is hopefully going to help get the economy back on track.

The Scheme

The Treasury and Bank of England’s Funding for Lending scheme is going to be given to banks so that cheaper loans and mortgages will be made available to the public.

This extra money will be made available to businesses which will exceed the current national loan guarantee scheme which helped businesses take on extra staff. British banks are going to be offered the funding at low interest rates which will incentivise them to offer the low rates to the customers.

As a result of the low interest rates, this will help businesses save money and in turn, they will be able to hire more staff. By having more of the population in employment, this means more people will be looking to spend their money, putting it back into the economy and this includes purchasing homes. This will therefore help boost the housing market by increasing demand and current homeowners will be more encouraged to move into a new property. This will also increase supply.

Property Market

This is desperately needed in a time where people are forced into renting for much longer and therefore are unable to save for a deposit to even qualify for a mortgage. Those who are unemployed and aren’t already on the property ladder will also struggle and will be living with parents for a long time to come. This does not help the current stagnation that is already being experienced in the housing market.

With mortgage rates a lot lower this will help ease the financial burden that comes with owning a property. For many landlords in the country, their monthly bills may be on the increase whilst there are additional costs, such as landlord insurance that need taking care of. Lower rates mean more cash for these essentials and less financial stress landlords and general households throughout the country.

Doubt

However, with the economy as it is, many fear that banks will simply not want to lend more no matter what interest rate they will be paying. This is especially true with a “Eurozone storm” on the horizon.

Chris Leslie is the Shadow Treasury minister and he has said, “Despite promises from ministers, net lending to businesses has fallen in every month of this Government. And there are serious questions about whether the new Funding for Lending scheme will really see lending to businesses become cheaper and easier to access.”

What are your thoughts on this new lending scheme? Let us know by commenting below.