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Funding for Lending launched

Funding for Lending launched
Banks and other financial institutions can start borrowing money at below market-rates today, as the Government's Funding for Lending scheme launches.

Some banks and building societies have already embarked on a mortgage price war, slashing the cost of their fixed-rate loans.

Whitehall sources have admitted the programme effectively replaces the current National Loan Guarantee Scheme (NLGS).

"The scheme is not being formally axed, but it is reasonable to expect that banks will not deem it sensible to continue accessing it," one source told Sky.

Financial Secretary to the Treasury Mark Hoban said this morning that although it was being wound down, the NLGS had been a success.

He told the Today programme: "The National Loan scheme was very successful; it made 16,000 loans over the course of the last quarter, which is worth about £2.5bn at lowest interest rates.

"But what we’ve identified is that there are more businesses and households out there who’d benefit from lower rates of interest and that’s why we’ve introduced the Funding for Lending scheme.”

However the director of the National Institute of Economic and Social Research, Jonathan Portes, has raised concerns that the scheme is essentially "a subsidy to the banks" and will not increase lending to businesses.

"Essentially it really is just a subsidy to the banks, an interest rate subsidy to the banks. The worry is that, first of all they may simply skim some of that off themselves to pay bonuses and for their own profit."

"Second, that while they may pass some of the savings on to people who borrow, that won’t necessarily increase the volume of lending, it will just reduce the price."

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On air

Hoban: Funding for Lending will incentivise banks to lend

01/08/2012 on Today, Radio 4

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Jonathan Portes: New scheme is simply a subsidy for the banks

01/08/2012 on Today, BBC Radio 4

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