The new Government lending initiative has been launched to get banks lending again.
The floodgates have now opened for banks to start offering homeowners and businesses loans with some additional support from the Government.
In the Funding for Lending initiative launched by the Sir Melvyn King last month, the Government are providing banks with additional funding which they are to use to lend to smaller businesses and for those seeking a mortgage.
The way the scheme will work is the banks will borrow money from the Government with a low level of interest rate, the banks will then lend this money out to businesses and prospective home owners.
However if the banks do not lend the money out they will be asking to return the funding under a much higher interest rate.
The scheme is designed to bolster the UK economy to get us growing again.
Chancellor George Osborne has confirmed that this scheme will supersede the current £20bn credit easing initiative. Osborne has commented;
“The National Loan Guarantee Scheme has made a real difference, with over 16,000 cheaper loans worth over £2.5bn already offered to businesses across the UK. In many cases, the money saved has meant an extra person employed who otherwise still might be looking for work.”
Banks have already lowers their interest rates on mortgages and loans in preparation for this scheme coming in.
Some analysts are critical of the scheme arguing that some banks will still not want to lend more during the Eurozone crisis, however what we can say is that it is another step in the right direction towards helping the UK economy grow again.