Cheaper funding is round the corner

Lenders will be able to access cheaper funding through the government’s Credit Guarantee Scheme within a matter of days.

Institutions will benefit from lower costs to access the scheme pending approval from the European Commission, which is hoped will be secured over the next couple of days.

Higher rate charges that are incurred during this time will be backdated to the lower cost once the Treasury has backing from the EC.

The government announced the proposals yesterday to bring down the costs for lenders to use the scheme, which provides a government guarantee for a fee.

The way the fees are determined is being changed so that lenders using the scheme will be charged a lower fee for use of the government guarantee. The Treasury maintains this will still be priced at a commercial rate.

The aim is to reduce the cost of funding under the scheme, first announced in October, and bring it more in line with the cost of funding in other countries.

The government plans to ensure the lower cost of funding is passed on to homes and businesses through its proposed supervisory lending panel.

The scheme has been lengthened from three years to five years ending in April 2014. It currently provides guarantees for borrowing in sterling, euros, and US dollars but the plan is widen this out in future to a range of currencies.