Government Funds are now available for Lending Scheme
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Funding of lending is a new scheme introduced by government. Government has launched this scheme to encourage banks for lending more business loans to small businesses and individuals. Actually alike any other country of the world UK is also facing low economic environment due to recession and it is expected that the new scheme will help to overcome from recession.
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The Bank of England provides more money to financial institutions at lower rates in compare of market rate in this scheme. Financial institutes can pass the amount to consumers at lower rates. Banks will monitor the progress of lending amount in order to see the effectiveness of the plan.
Bank of England has expressed its views on Funding for lending scheme. It has said that the plan is designed to incentivize building societies and banks in order to encourage lending and to improve the number of approved loans for UK households and non-financial companies. This scheme is targeted for growth in housing market as well as for small businesses.
Official are hoping that the scheme will work better financial sources for first time buyers. They will get lower mortgage rates to purchase house. Price of house will face downturn in 2012 throughout the UK after revised rates of mortgage loans. At present time, lowest mortgage rate is available only for those borrowers who can afford 40% or more upfront payment on house. However, there are cuts on deposit rates from some mortgage lenders.
Initially the scheme will allow banks and building societies to borrow 5% of the amount they lend. Interest on the borrowing amount is just 0.25% and borrowing amount can be increased once they show the proof of increase in lending amount. If there is decrease in lending then interest rate on initial loans will be hiked at 1.5%. Scheme is also available for logbook loans.
The scheme has come after examining the official figure on lending. It shows 17% decrease in past four years in small business loans and housing loans.
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