Article contributed by ACCA
Details of the new Business Bank and Help to Buy scheme.
In the Budget the government acknowledged that access to finance for SMEs remains challenging.
The Budget highlighted the progress made by previous initiatives like the Funding for Lending Scheme (FLS) and the Business Finance Partnership.
The FLS complements the Bank of England’s asset purchase programme by delivering support to the economy via the banking system. The scheme is designed to boost lending to households and non-financial businesses by reducing bank funding costs.
According to the government the FLS has been a success, with signs that lower bank funding costs are now being reflected in lower lending rates and increased credit availability. The British Bankers’ Association (BBA) and the banks have produced guidance on their funding approach. This details the current offerings from a number of banks.
The government’s strategy on access to finance is going to be extended with the introduction of the Business Bank that is intended to make a significant difference to the level and diversity of finance provision, while also improving competition in the market and supporting SME growth.
In the Budget the government announced that it will:
- publish the Business Bank’s first business strategy on 22 March 2013. This will set out an accelerated timetable for how the Business Bank will deploy £1bn of new capital to improve existing access to small and medium-sized enterprise (SME) support schemes and develop a lasting new institution by the end of 2014 that will expand and diversify UK finance markets so that they serve the needs of SMEs
- launch a £300m investment scheme in spring 2013 to help diversify and expand the supply of lending to SMEs and mid-sized businesses
- provide an additional £50m for the Business Angel Co-investment Fund for SMEs
- extend the Enterprise Capital Fund programme to include a £25m venture capital Catalyst Fund for investment in SMEs
- maintain the lenders’ guarantee cap at 20% for Enterprise Finance Guarantee loan portfolios for 2013-14.
The Budget also confirmed that £30m additional funding has been given to expand the Start Up Loans scheme in England together with an increase in the age limit to 30, up from 24.
Help to Buy
The Budget includes significant news also in respect of household financing with mortgage support provided via two types of instruments: an equity loan and a mortgage guarantee.
From 1 April 2013 a new package of measures, called Help to Buy, will be introduced. The package is aimed at increasing the supply of low-deposit mortgages for credit-worthy households and at improving the supply of new housing.
The new measures will:
- provide an equity loan worth up to 20% of the value of a new build home, repayable once the home is sold
- significantly widen the eligibility criteria to ensure as many people as possible are able to benefit. The maximum home value will be £600,000 and there will be no income cap constraint
- ensure that the scheme is open not only to first-time buyers but also to all those looking to move up the housing ladder.
The equity loan will be open for the next three years and, as well as supporting home buyers, it should also provide a boost to the construction sector.
Additionally the government will create a new Help to Buy mortgage guarantee to increase the availability of mortgages on new or existing properties for those with small deposits. The Help to Buy mortgage guarantee will be a temporary scheme running for three years from January 2014 that will:
- increase the supply of high loan-to-value mortgages by offering a government guarantee to lenders who offer mortgages to people with a deposit of between 5% and 20%
- be open not only to first-time buyers but also to existing homeowners
- have no income cap constraint
- be available on homes with a value of up to £600,000.