Lenders say they expect the Government’s Funding for Lending scheme will push down rates for borrowers.
Barclays, Lloyds Banking Group, Royal Bank of Scotland and Nationwide Building Society have all confirmed they will take part in the scheme while HSBC has ruled out joining, saying it will continue to fund its lending largely through retail deposits.
Under the scheme, the Bank of England will lend UK Treasury bills to lenders for up to four years for a 0.25 per cent fee per year, increasing by 0.25 per cent for each 1 per cent fall in net lending to a maximum of 1.5 per cent.
Lenders deposit collateral with the BoE as a security and, according to the Bank, can then use the Treasury bills to access money at “rates close to Bank rate”. Each lender can access up to 5 per cent of its existing stock of loans to SMEs and households and are incentivised to boost lending because every pound of additional lending would be eligible for the scheme.
This week, Royal Bank of Scotland announced it is cutting its rates on a fee-free, five-year fixed-rate deal at 90 per cent LTV from 6.49 per cent to 4.79 per cent as a result of the scheme.
Barclays intermediary channel director David Finlay says: “We will reprice in line with any market movements.”
Skipton Building Society head of intermediary sales Paul Darwin says: “I can see rates falling across the piece.”
John Charcol senior technical manager Ray Boulger says he expects lenders will lower their rates by between 25 and 50 basis points.
The Government hopes the scheme will result in an extra £80bn of lending in the next 18 months.