George Osbornes £130bn FFLS

pricedout_1

2 points here, first of all that is a lot of taxpayers money being used to prop up the housing market. Is this level of centralised planning and allocation of public funds not tantamount to communism?

secondly, how is that money being used exactly? Is it literally just being dished out to the banks so they can lend it out to FTB's? So, in other words reallocating large sums of taxpayer money to be used as mortgage lending...

HAMISH_MCTAVISH

hughgallagher wrote: »

2 points here, first of all that is a lot of taxpayers money being used to prop up the housing market. Is this level of centralised planning and allocation of public funds not tantamount to communism?

secondly, how is that money being used exactly? Is it literally just being dished out to the banks so they can lend it out to FTB's? So, in other words reallocating large sums of taxpayer money to be used as mortgage lending...

It's around £12 bn of govt guarantees which are then used to leverage up to £130bn in new lending.

The govt is only on the hook for £12bn.

And even then only if 100% of the mortgages default, and all of them are sold for less than the purchase price after repossession.

In reality, the actual costs to the taxpayer will almost certainly be tiny, and far outweighed by the benefits to the wider economy.

chewmylegoff

Hamish - are you confusing funding for lending with homebuy or whatever it is called?

Funding for lending is a scheme where banks can borrow gilts from the BOE in return for eligible collateral (ie existing mortgages). The bank pays the BOE a fee for the privilege but can then lend more money out.

As such neither the govt not the BOE is lending any tax payers money to anyone. Presumably the gilts are the ones that were purchased by the BOE using money created by QE.

Edit: whoops this isn't quite right - seems it is treasury bills rather than gilts. Same principle though.

HAMISH_MCTAVISH

chewmylegoff wrote: »

Hamish - are you confusing funding for lending with homebuy or whatever it is called?
.

No, just assumed with the £130bn reference that he was referring to the wider help to buy scheme for next year, as announced in the budget. As thats the only £130bn scheme I can think of.

FFL is 80bn, no? And as you rightly point out doesn't use taxpayers money for any lending at all.

Difficult to work out what he's on about, TBH.

chewmylegoff

I think FFL is technically unlimited as BOE website says that a bank can 'borrow' an extra £1 for every new £1 that it lends out.

Thrugelmir

hughgallagher wrote: »

secondly, how is that money being used exactly? Is it literally just being dished out to the banks so they can lend it out to FTB's? So, in other words reallocating large sums of taxpayer money to be used as mortgage lending...

Suggest you read up on how the scheme works. As the drawdown of funds has been very limited. The use of of the funds is very specific as well.

Banks are an essential part of a working economy. So their failure is of no good to anyone.

dotdash79

hughgallagher wrote: »

secondly, how is that money being used exactly? Is it literally just being dished out to the banks so they can lend it out to FTB's? So, in other words reallocating large sums of taxpayer money to be used as mortgage lending...

Err funding for lending isn't just being used by FTBs, it's being used against products from home movers and people re-mortgaging. It's part of the reason why rates have dropped recently on lending.

I've managed to get on the housing ladder at a decent rate with a building society that wouldn't have been lending otherwise. It's helped to create some flow in the market where wholesale lending is still quite low.

For me it's been a success and the affects are starting to trickle through.

Mr._Pricklepants

dotdash79 wrote: »

I've managed to get on the housing ladder at a decent rate with a building society that wouldn't have been lending otherwise. It's helped to create some flow in the market where wholesale lending is still quite low.

For me it's been a success and the affects are starting to trickle through.

Good stuff.:T
Great to see real world examples of this policy being effective.

In the mean time, we'll just have to ignore the eternal whiner's view on the FFL scheme, such as;

ruggedtoast wrote: »

It is sickening and wrong and there is not one single mainstream politician calling the tories out on it.....

Its like I'm watching Gen X and Millennials being slowly and repeatedly mugged until the mugging has been IOU'd down to kids who ....(more melodramatic blubber).

michaels

So where does the risk lie with FFL..If it is with the banks then surely the scheme will not increase lending and if it is with the govt then there is a taxpayer risk?

chewmylegoff

The risk lies with the Bank of England in that if one of the banks (bank A) went bust AND then the collateral put by bank A turned out to be worth less than the amount of treasury bills lent to bank A then the BOE would take a loss - of course what would really happen is that the government would bail out bank A so the taxpayer would take the loss.

Thrugelmir

michaels wrote: »

So where does the risk lie with FFL..If it is with the banks then surely the scheme will not increase lending and if it is with the govt then there is a taxpayer risk?

Further down the road, the money is repayable to the BOE. The FLS is merely filling in for the void in the wholesale money markets. The bulk of the money is being offered in the form of fixed term products. Which have the sting in the tail of reverting to a much higher follow on rate. So many will be in for for a shock if their expecting to remortgage onto a similar rate in the future.