Funding for Lending (FLS), the Bank of England and Treasury scheme to boost bank lending to households and companies, opened for business at the beginning of August 2012. Stewart Hindley & Partners look at the impact so far.
The original aim of the Funding for Lending scheme was to increase bank lending by up to Â£70bn by letting commercial banks borrow funds from The Bank of England cheaply, so that the banks then pass this on in the form of cheap loans to households and firms.
The hope is that this will help keep the economy out of recession, by halting the downward spiral of lending and borrowing that the UK has experienced in the past few years, since the onset of the credit crunch and international banking crisis.
Banks and building societies will be able to access the funds until the end of January 2015, after the scheme was extended for a year by the government.
The Sunday Times recently reported on the results as follows:
Funding for Lending Take-up
- In its first report on FLS, at the start of December 2012, the Bank of England said that in the third quarter of the year, just six banks or building societies had actually used the Funding for Lending scheme. Together they had borrowed Â£4.4bn, and in fact this had boosted their net lending by only Â£496m.
- Net lending fell in the next quarter, and in the first three months of 2013. But by the end of June, net lending by the 41 banks and building societies taking part in the scheme gathered pace again. It was up by Â£1.6bn in the second quarter of the year.
- Together, the 41 institutions had drawn down Â£17.6bn under the scheme.
The Bank says it will take longer for new loans to filter through to the business sector, because of the time it takes to get a loan approved. It also said many banks had cut back on loans to commercial property companies.
FLS for Small Businesses
- Small businesses have been finding it tough to get loans, even after the start of the FLS schemes. The British Chambers of Commerce has said that new businesses are still considered to be high risk by many banks and building societies.
- Consequently, new incentives were announced in April, under the scheme, to encourage banks to lend to small and medium-sized enterprises (SMEâ€™s).
This allows banks to borrow an extra Â£5 from the FLS for every Â£1 they lend to SMEâ€™s.
Commercial Mortgage Lending
Mortgage lending is where the first effects of FLS have been seen. More money is available to commercial borrowers, at lower interest rates than before, although so far the banks are still being very fussy about to whom they will lend too, as a result, most deals still require a deposit of 30% or more.
Savers have suffered an unforeseen knock-on effect of the Funding for Lending Scheme. They are now being offered even less interest on their savings accounts than before.
The availability of cheap funds from the Bank means that lenders do not need to try so hard to attract funds from the general public, which is why it is now almost impossible to find a savings account offering more than 2% interest.
Business finance brokers, Stewart Hindley & Partners specialise in commercial mortgages and can help you access the Funding for Lending Scheme to grow your business. Contact us now for further advice and information.
Source: Sunday Times