Like a dry day with a blink of sun after weeks of record-breaking rainfall, the £80 billion Funding for Lending programme, launched yesterday, offers a vital glimmer of hope amid the continuing financial wreckage of the 2007 credit crunch.
The scheme, to be run by the Bank of England, is designed to jump-start the economy by enabling banks and building societies to borrow at low rates. This is a welcome, if overdue, practical step to make it easier for small businesses to borrow funds and for house purchasers, especially first-time buyers, to obtain mortgages.
Significantly, there is recognition of the need to ensure the banks do not simply sit on the cash. They will have to lend more if they want to borrow at the cheap rates, because access to the scheme is on a pound for pound basis for additional lending to the real economy. Banks which reduce their lending will have to pay higher fees.
This carrot-and-stick combination should be an incentive to provide loans but is it both too little and too late to rescue the economy from recession? With Funding for Lending offering rates in some cases half or less of what banks would pay in the finance markets, there should be some movement, even on a small scale. However, businesses who have been complaining about being denied loans are now increasingly reluctant to borrow, even at cheap rates, when the unresolved euro crisis is casting a black cloud over future prospects.
First-time buyers are among those most likely to benefit from banks and building societies increasing responsible lending. The catastrophic policy that got us into this mess of offering mortgages for 100% or more of the value of the house has impacted severely as banks have demanded much higher deposits.
In Scotland the number of first-time buyers plummeted from 21,100 in 2003 to 7000 in 2009. That makes the figure of 9000 first-time buyers in the first six months of 2012 (a 21% increase on the same period last year) especially heartening news. This will be due to a number of factors but with average house prices within reach of the average wage in 93% of local authority areas, more people will be keen to step on the first rung of the property ladder.
With the Funding for Lending scheme to call on, banks have no excuse for not providing mortgages without repeating the mistakes of overlending to weak borrowers. This should eventually have positive consequences for the construction industry. Given the uncertainty in the eurozone, this will not amount to the green shoots of recovery.
Launching the low-interest rate scheme at a crane factory, the Chancellor said it showed Britain was not powerless to act in the face of the eurozone crisis. Having recognised the need for action, he should now heed the call of the director-general of the CBI for diggers on the ground.
We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.
Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.