Funding for Lending Scheme
Last year, the Bank of England and HM Treasury introduced the Funding for Lending Scheme (FLS) to help boost growth in the UK economy. It provides a way for banks to provide loans at a lower rate of interest. The scheme is designed to encourage banks to lend to small businesses and personal households; the more the banks lend, the less they repay in interest.
In a statement released on the Bank of England website, George Osborne, the Chancellor of the Exchequer is quoted as saying: “Today’s announcements aim to make mortgages and loans cheaper and more easily available, providing welcome support to businesses that want to expand and families aspiring to own their own home. The Treasury and the Bank of England are taking coordinated action to inject new confidence into the UK´s financial system and support the flow of credit to where it is needed in the real economy – showing that we are not powerless to act in the face of the Euro zone debt storm.”
The scheme was initially criticized after its launch for not achieving the desired increase in lending. However, more recently, as confidence has returned to small business owners and private families, the Treasury has hailed it as the main factor in helping to reduce the cost of mortgages. The announcement to extend the FLS beyond the initial cut-off date of January 2014 comes after a second of the big three ratings agencies stripped the UK of its triple-A credit rating.
What is HM Treasuries plan?
The Chancellor is hoping that the scheme will gain momentum and help boost growth in an economy that is showing little sign of recovery. Since the recession hit in 2008 the UK has consistently failed to reach its expected growth forecasts. The fact the International Monetary Fund (IMF) downgraded the forecasts it had previously made for the growth of the UK economy is yet another blow to the Treasury.
What does this mean?
For the average man on the street or small business owner, FLS increases the chances of you being accepted for a loan at reduced borrowing costs and lower rate mortgages. However, the scheme is only available at banks and building societies that have signed up for the Bank’s Discount Window Facility and low interest rates only last for four years so make sure you check the terms of the policy agreement once the low-funding date expires.
It is clear from comments emerging out of the IMF that they believe the austerity measures implemented in the UK may be strangling the economy. When they meet with the Chancellor next month it is very likely they will recommend reducing the severity of the austerity measures to fall in line with the slower growth.
The likelihood of the chancellor back peddling on austerity measures is unlikely. Mr. Osborne says he will defend his policies, believing they are the best way to deal with Britain’s deficit.
If you would like to know more about how FLS loans can help and hinder you, call Taxaccolega a low fixed fee accountant’s team of chartered accountants today on 08000 235 234 and speak with one of our friendly experts.