The funding for lending scheme introduced by the UK government last year might be working out well for indebted businesses and people trying to get on the property ladder, but for those with savings it’s having the reverse effect.
The scheme involves giving mortgage lenders the option to borrow funds at low interest rates, with the condition that the money is lent to small businesses and homebuyers.
Although the results produced by the scheme so far have been largely positive, it’s a very different story for those living overseas and trying to build savings.
According to the Telegraph, banks participating in the Funding for Lending Scheme have reduced their money raising efforts when it comes to attracting deposits from savers (which is how mortgages are usually funded).
Consequently, while the Bank of England has held the base rate, savings rates have dropped.
For some overseas savers, rates are so low that returns are nullified by inflation.
Data analyst Charlotte Nelson was quoted as saying: ‘Since the launch of the Funding for Lending Scheme to help kick-start the mortgage market not a single savings account – including those offshore – has been untouched by its effect. The market has seen savings rates plummet to all-time lows as banks no longer need to compete for savers’ deposits to balance their mortgage books. This leaves savers baffled, with no real hope of a decent return on their investments.’
In today’s inflation report the Bank of England asserted that it is prepared to expand bond-buying, should it prove necessary, and that interest rates will be held at record lows until UK unemployment falls to 7 per cent (it currently stands at 7.8 per cent).
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