Funding for Lending scheme changes allow BuytoLet investment

by Neil Patterson

5 years ago

Funding for Lending scheme changes allow BuytoLet investment

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Funding for Lending scheme changes allow BuytoLet investment

The Bank of England Funding for Lending scheme will now allow Small and Medium sized enterpises (SMEs) to lend the money available on to property investors.

The Funding for lending scheme has been extended another year until January 2015 and from 2014 banks will be able to borrow £10 of cheap Bank of England money for every £1 the lend to SMEs. This has double the previous allowance of £5 for every £1 banks lend.

This doubling of incentive to try and stimulate the economy could have a very positive effect for property investors for the first time as Buy to Let is still seen as relatively low risk by banks compared to taking an educated gamble on a start up business.

Rob Wood, chief UK economist at Berenberg Bank, said ‘It could be a no-brainer. Lend to a landlord and get 10 times that lending back as essentially free funding, then recycle some of that back out again on mortgages or BuytoLet.’

£80 billion has been set aside by The Bank of England for this scheme to kick start the economy and get lending available to business, but to date the take up by banks has been disappointing with £14 billion being taken between August and December last year. However it is hoped that the extended scheme and greater incentive will boost the take up and for the Private Rental Sector add a much needed injection of competitive financing.



5 years ago

This is potentially of interest to small builders and developers too: rather than build to sell, they would Build to Rent, with this kind of mortgage financing being used to recycle their capital back into building new houses.

My own development business, for example, finds it impossible to find development capital except at just 33% of the gross development value, with friends released in arrears and credit-card rates of interest. Small builders are being squeezed at the finance end and at th planning end, with crippling taxes in the form of Community Infrasrtucture Levy at £25-50K per house and having to give away 33-40% of any site above 5 houses as social housing to housing associations. Think about it: if you build six houses, you have to give away two of them as "affordable homes", leaving you to make a profit on the remaining four houses, whilst paying 20-25% interest on any loan towars your construction costs.

Neil Patterson

5 years ago

Hi Tony,

We desperately need the economic environment that will encourage business people such as your self to to kick start the supply of new properties and thus improve the GDP figures as the building industry in productivity terms has suffered more than even the Banking industry and the Public sector.

Kevin Biggins

5 years ago

I commend the Bank of England and the government for providing this funding initiative but once again it is being hogged by the banks. They get to borrow 10 times the amount they lend to SMEs (the backbone of the UK economy) at exceedingly low rates yet are failing miserably to pass this on to borrowers. They then throw on a large generous margin to themselves and farm it out to us whilst reaping the profit provided by tax payers. I want to start my own bank - but I don't need to as I am already a shareholder in one and a half banking groups (RBS and Lloyds) through the government ownership. Why don't we get the government to force the banks (which we own) to lend at a reasonable margin. Such a bank would take all the business from the greedy banks, they would become the most popular bank and the share price would rise as their profits rise. It could then be sold on the stock exchange at a profit and the tax payer would not be out of pocket.

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