A new lending scheme introduced in recent years called the Funding for Lending Scheme (FLS) that was aimed at improving the accessibility of loans to individuals and small businesses. However, in a recent survey from the Bank of England, we find that the number of individual and business loans have actually gone down in the last quarter of 2012. The total amount was lowered by £2.4 billion despite the scheme which was supposed to do the opposite.
A spokesman for BusinessLoans.org.uk stated that it seems like most lenders did not even take part in the project. Only 13 out of a total of 39 banks accessed funds available through the scheme, with the others instead deciding to turn down potential clients that they felt were too much at risk. Those 13 institutions received £1.88 billion more than the amount that they lent out, with just as much money being brought out of the economy.
In total, ten banks and financial institutions have increased lending, however the majority did not, and the net result is that the total amount went down. In fact, all ten banks were offset by just three which had taxpayer-backed money for their net borrowing. These were the Lloyds, Santander and Royal Bank of Scotland institutions. All three claim that without the FLS, the figures would have been much lower.
In all, £9.5 billion were draw down funds in the FLS, with a total of £2.4 billion in net lending. The FLS was introduced last year as a way to increase lending within a year. In all, 39 financial institutions decided to join in, although most did not participate. The program offers these banks the ability to access loans at cheaper rate, subsidized by public funds. As a condition to use these funds, the banks have to pass on the savings to their customers.
Some of the experts say that the scheme is simply taking time to take root, although most think that the FLS is now a much better option, and banks should be using it if they truly want to increase the number of loans they give out here in the UK. In all, £80 billion is available through this program although that amount is only guaranteed for individuals and small business loans. Because mortgage rates have dropped, many think that banks still prefer to use these types of loans instead of the traditional individual or small business loan which banks find more risky.
Those who did use the fund concluded that it has helped, and clients find these rates to be better. As an example, a £100,000 mortgage is £1,000 cheaper in the first year when using these rates, and this can make a big difference, especially in first time buyers.
Right now, the Bank of England is not planning to make any change to the program until more data is available. The FLS will be a year old this summer, and after that a full review will be conducted. If things keep going the way they are, it seems likely that most people who could have made use of this scheme will not have had the opportunity to do so.