The Treasury has announced details of its £80bn ‘funding for lending’ scheme, designed to encourage lenders to do more lending to small businesses and individuals. The idea is that reduced funding costs should mean banks and building societies can offer cheaper loans which are easier to come by.
It is simple: if lenders do more lending, they will be able to access more money from the scheme. They will also be able to access cheaper loans than those lenders who do not increase the volumes of lending they will do.
More funding is vital. Although the Council of Mortgage Lenders’ figures for lending in May suggested an increase in the number of loans being taken out compared with the same period last year, the market is still a long way off its peak. There are far fewer transactions because it is so much more difficult to get funding. Lenders’ criteria are tighter, borrowers need bigger deposits and there are fewer properties coming onto the market which is supporting prices, making it harder for first-time buyers to get a foot on that first rung.
Although we don’t know yet what rates banks will offer and whether this scheme will translate into significantly more loans, funding for lending is a step in the right direction. We hope lenders take full advantage of this opportunity to make more funds available to borrowers at competitive prices. It could be the welcome boost the market needs.