The Bank of England have today unveiled their much anticipated Funding For Lending Scheme, whereby additional funds are available to banks and building societies on the condition that it is used to increase lending to consumers and businesses.
The principal and thought behind it should be welcomed and there does seem to be a real incentive for lenders to take advantage of the scheme, however it is difficult to be anything more than cautiously optimistic.
Lenders in general seem to have been reticent in the past to up their lending, as Project Merlin previously proved, preferring to hide behind claims that there was a lack of demand or indeed worthy businesses to lend to.
In the mortgage market I suspect we will see a slight increase in product availability and associated further cuts in pricing, especially as Libor and Swap rates have fallen recently as well, but this needs to be channelled towards those who are finding it difficult to obtain mortgages, such as first time buyers, rather than further swamping the 60% Loan-To-Value and below market where there is no problem.
Whilst SME’s may benefit more than actual mortgage customers this is good news for the economy and will help businesses to move forward, recruit and grow which in turn will help the housing market.
The detail is actually all relatively simple; banks will be able to borrow from the Bank of England up to 5% of the amount they currently lend, worth around £80 billion. They can then borrow 100% of any additional lending they embark on.
This is an incentive in itself, but the real crux is how the fees on the borrowing are charged. For a period of 4 years lenders are charged 0.25%, however this rises up to a maximum of 1.5% if lenders subsequently cut their lending levels.
For the full details of the scheme see here.
Meanwhile, cleverly timed to coincide with the Governments Funding For Lending Scheme, HSBC have launched an astonishing 5 year fixed rate at just 2.99% which is set to shake up the fixed rate market, setting a new benchmark which we warmly welcome.
To other lenders and indeed the Government scheme itself, it is the equivalent of a glove slapped into the face of every major lender, challenging them to get anywhere near them.
It will be interesting to see if on the back of the Governments new scheme lenders do actually follow through with promises to make more lending available at competitive rates such as this.
As with all HSBC products however, I expect many would be borrowers to end up disappointed as they fail to get through the many hoops the bank make borrowers go through to qualify. Reports we get from clients is that service is already slow and will no doubt continue to suffer.
We have rescued two clients this week alone from HSBC who were exasperated with the length of time the process was taking.
For those who need to move quickly, especially in the competitive London market, the cheapest rate on the market is useless if you end up losing the home of your dreams.