DOUBTS have been cast over whether the Coalition Government's £80 billion push to kick-start bank lending will help first-time buyers seeking to get on to the property ladder.
Ahead of yesterday's official launch of the Funding for Lending scheme (FLS), the Treasury stressed it was already having an effect with moves being made to boost the mortgage market.
The Royal Bank of Scotland, in anticipation of the new scheme, is offering a fee-free 4.79% five-year fixed rate for first-time buyers borrowing up to 90% of the property's value.
Yet industry experts feared the new loans would not filter through to those buyers with only modest deposits and the underlying problem was not one of available cash but a lack of confidence in the overall economy.
Under FLS, banks will be offered funds at low interest rates over a four-year period. The funds will be linked to a bank's lending performance in a bid to free up the log-jam in credit hitting the British economy.
The fees on the loans are set up to incentivise banks to increase lending to households and businesses. For every £1 of additional lending made by a bank, it will be able to access an extra £1 of cheap funding from the scheme. Those which reduce lending will pay higher fees to use the scheme.
Banks will be able to access finance at rates from around 0.75% including fees, which is much cheaper than the equivalent 1.25% to 2.5% rate in finance markets.
Launching FLS, Chancellor George Osborne claimed it would help ease credit conditions throughout the whole economy and conceded that over time it would replace the £20bn National Loan Guarantee Scheme (NLGS), which focuses on business loans.
Nonetheless, Mr Osborne insisted the NLGS had made a real difference by offering more than 16,000 cheaper loans worth more than £2.5bn to businesses across the UK and would be kept going in case it was required again.
He said: "In many cases, the money saved has meant an extra person employed, who otherwise still might be looking for work. The more generous FLS has officially opened for business and will in time effectively take over from the NLGS, delivering credit easing to the whole economy."
Yet, despite the bid to ease credit, fears persist the overall confidence in the economy will still constrain banks from increasing their lending.
Shadow Treasury Minister Chris Leslie said: "Despite promises from ministers, net lending to businesses has fallen in every month of this Government. And there are serious questions about whether the new Funding for Lending scheme will see lending to businesses become cheaper and easier to access."
Mortgage analyst Aaron Strutt pointed out how mortgage deals still favoured those with larger deposits. He said: "Most deals attractive to first-time buyers, such as those at 90% or 95% loan-to-value, have not changed yet."
Jonathan Portes, director of the National Institute of Economic and Social Research, said: "In general terms, it is good the Government is doing something to try to restart lending to the real economy. What concerns me is this is replacing a scheme that hasn't worked.
"We have had a number of these schemes and there is still considerable concern the role of the banking system, in doing its fundamental job of channelling people's savings into the real economy, just isn't working."
Mr Portes pointed out the key problem related to general economic policy.
He said: "We can't get away from the fundamental point that the main reason for lack of investment and spending by businesses and households is a lack of confidence and the fact that demand overall in the economy is weak and this won't directly address that."
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