Yesterday editor Fraser Nelson said: “Don't look now, but another government 'growth' plan seems to heading for the rocks.”
And writing in his blog he added: “It seems that yet another coalition growth scheme is falling flat on its face: this time, Sir Mervyn King’s ‘Funding for Lending’ brainwave.
“The theory was that the Bank of England would lend money at below-market rates to the financial institutions: sub-prime loans, in other words.
“Not without its risks: chiefly, what if the banks just use this cheap cash to lend more to their safest borrowers, rich guys with big deposits? Don’t worry, Sir Mervyn said, the Bank would monitor every month and report back. It just has, and Citi Research has chewed the result.”
He goes on to point out that the first four weeks of Funding for Lending has seen consumer lending drop by £400m with mortgage growth now the lowest since data began almost 20 years ago.
Nelson, a regular on BBC’s Question Time, added: “Lending to companies has done no better, falling £2.2 billion in August. Supply of credit to British companies has now been falling for 40 consecutive months. As for mortgages, they’re actually getting more expensive. The average fixed rate mortgage rate rose by 0.03 percentage points and is up 0.52 points this year so far. That said, a few well-paid people I know have reported getting brilliant fixed rates. Those with sufficiently large deposits seem to be doing very well, but these are not the people who need help.”
So far 13 financial institutions, accounting for about 73% of UK lending, have signed up to the Funding for Lending Scheme which is intended to lower banks' funding costs. The aim is to provide lenders with the means to offer increasingly competitive rates in order to improve mortgage availability for borrowers.
