BoE In GBP50 Billion Loan Rescue Of UK Banks

Mon, 21 Apr 2008

The Bank of England (BoE) is today expected to unveil details of a plan for a loan injection to aid the UK's credit-hit banking sector.

A recent warning from the Council of Mortgage Lenders that home loans could be reduced by 50 per cent in 2008 has led to fears of a crash in the UK housing market and the impact this could have on the wider economy .

The BoE is reported to be preparing an unprecedented £50 billion loan, by swapping government bonds for mortgages held by British banks .

The bank hopes that the security provided by the bonds, which would mature after one year but could be renewed for a further two years, will restore confidence in the money markets and enable banks to start lending to one another.

The Bank of England has up till now received criticism form UK lenders for its lack of support since the start of the credit crisis last August.

Market turmoil has led to a shortage of funding for mortgage lending and high interbank lending rates, meaning that despite three base rate cuts since December, mortgage costs have continued to increase.

The Treasury is expected to limit the maturity of the bonds to one year, while allowing them to roll over for three years, in a bid to ensure the loan doesn’t appear as part of the UK’s national debt .
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