Has The Government’s FLS Scheme Really Made Borrowing from Banks & Building Societies Easier?

Written by Karen Bryan

£20 notes close up1 240Two years since it was first introduced, it’s about time that someone looked at whether or not the Bank of England’s Funding for Lending (FLS) Scheme has succeeded in trying to make personal loans from building societies and banks a more viable option for the average householder.

What is the FLS?

For anyone that was looking to borrow money back in 2012, the introduction of the government’s revolutionary FLS initiative looked like the perfect solution to a steadily worsening problem;

Pioneered by the bank of England, this scheme promised to make borrowing from banks and building societies much easier for the average citizen.

It worked by offering to exchange pre-existing loans for treasury bonds that can be used to heavily subsidize borrowing; a tactic that would (hopefully) help lenders to access more funding, and, as a result, encourage the majority of high-street banks to offer more accessible rates to the consumer.

Interest quickly peaked though, and amid concerns of a worsening global crisis, many started to claim that the initiative had completely failed to alter the way in which banks lent money.

Did The FLS Work? An Analysis

The number of banks using the FLS to subsidize loans rose rapidly in 2012, before crashing to rock-bottom figures at the end of 2013 according to a statistical overview released by the Bank of England itself.

But that apparent failure is underscored by the fact that building society and banking loans have become much, much more accessible over the course of the past 24 month period though – largely as a result of the better rates that banks have been offering since the FLS debuted.

Some commentators consistently paint the introduction of the FLS as a failed exercise simply because banks quickly stopped using the scheme to subsidize their loans, but it is important to note that statistics from the ONS show that borrowing from banks and building societies is definitely on the rise now.

Where interest rates were previously prohibitive, they’re now dropping rapidly and because of the extra confidence that the FLS gave lenders, building societies are much, much more open to the idea of offering the average householder an affordable (and reasonable) loan.

While we’d never recommend borrowing as a solution for dealing with debt, there’s no doubt that the loans offered by responsible building societies like Saffron are now a much more attractive proposition for anyone that’s looking to start a new business venture, fit a new kitchen, or enjoy a holiday abroad – and that’s, partially at least, as a result of the Bank of England’s FLS.