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Osborne’s big plans to boost mortgage and small business lending

The government has unveiled a £100bn package of support aimed at helping banks increase lending levels and protecting the UK economy from the worsening crisis in the eurozone.

Speaking last night at his annual Mansion House address in the City of London, the chancellor George Osborne unveiled two stimulus plans which he said would “deploy new firepower to defend our economy from the crisis on our doorstep”.

A “funding for lending” scheme will cut banks’ funding costs in exchange for lending commitments. Osborne says the new scheme could support up to £80bn of new loans.

Osborne said the scheme will offer “lending to the family aspiring to own their own home” alongside loans for businesses looking to expand.

Osborne said: “The government – with the help of the Bank of England – will not stand on the sidelines and do nothing as the storm gathers.We are rolling up our sleeves and doing everything possible to protect British families and firms.”

Banks will also have access to short-term liquidity support to deal with “exceptional market stresses”. The scheme will offer six-month liquidity to banks in £5bn-plus tranches.

The funding for lending scheme will provide funding to banks for an extended period of several years. The rates will be below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector.

Bank of England governor Mervyn King said: “The Bank would lend, as in its existing facilities, against a much greater value of collateral comprising loans to the real economy to protect taxpayers.

“But the long term nature of the lending and its pricing mean that the Bank could conduct such an operation only with the approval of the Government, as offered by the Chancellor earlier. So such a scheme would be a joint effort between Bank and Treasury.”

King suggested the funding for lending scheme could be in place within a few weeks.

Treasury select committee chair Andrew Tyrie says the proposals look “very encouraging”.

He says: “These are exceptional circumstances. They require exceptional measures. The measures look as if they will encourage lending to businesses by ensuring liquidity is more easily available. It is not just welcome that the Treasury and the Bank of England are working together to secure recovery. It is essential.”

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Comments
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  • bobby 18th June 2012 at 10:55 am

    NOTHING will happen, as NOTHING has ever happened simce Cameron took charge, FSA will disband, er, banks will be forced to lend, er, we will build more properties, er, 5% deposit scheme, er. All that will happen is it will be used to build up the banks reserves as no lender actually wants to lend anymore.

  • Tim Lynch 15th June 2012 at 3:32 pm

    Can’t believe the negative comments regarding what I feel is a most welcome shot in the arm for our industry.

  • Dazed & Confused 15th June 2012 at 2:51 pm

    Banks…Lend??? They have got to pay the performance bonuses first!

  • Phil 15th June 2012 at 11:30 am

    I am all for trying to encourage the banks to lend more at better rates to businesses and first time buyers. But all I feel this will do is give the banks a chance to make greater profits for themselves.

    The money should go direct to businesses that want and are trying to create jobs rather through third parties ie banks. If this money does go to banks how about insisting that those banks that accept this funding promise to use it to assist first time buyers on promoting 95% ltv products only and this funding can also be made available to building societies as well so they can compete on a level playing field – which would also make the banks more competative.

  • John 15th June 2012 at 10:36 am

    More debt! great.

  • GMS 15th June 2012 at 10:00 am

    At last there appears to be some admition by the coalition that the plan A is not doing what they expected. This scheme sounds like a good idea on the face of it but it will add more funds to the big boys looking to lend on vanilla applications. Some of this money needs to be pumped into the sectors where people are trapped, i.e newly self employed and adverse credit clients. The banks are happy to accept so called toxic loans as collateral for the new funds so why not allow them to be used to give the needy sectors the shot in the arm which is so much needed. The only way we will get the housing market moving is to make mortgage finance accessible to more people.

  • Andy 15th June 2012 at 9:53 am

    I thought quantitative easing was supposed to put money into the economy to let the banks etc lend more. As that has failed abysmally how is this any different ? Additionally how can anything involving Mervyn King be successful ?