Expert loan views & facts

Credit, from mortgages and secured loans to unsecured loans and credit cards, has become, in general, harder to obtain and more expensive since the credit crunch began.

A major reason for this is that banks and other financial institutions are also finding it hard to get credit. Under normal conditions, they can borrow money from each other by using some of the debt they own (i.e. the money they’re owed) as collateral. It’s similar to the way a homeowner can use some of the equity in their home to get a secured loan.

Today, however, no-one really knows what mortgage debts and other debts are worth. With property prices falling and the global economy slowing down, banks don’t know how much of the money they’ve lent out they will actually recover. This means that:

1. they’re not sure how much they can lend to individuals (in mortgages, secured loans, etc.) without risking their own financial stability, and
2. other banks don’t want to accept that debt as collateral for a loan.

Special Liquidity Scheme – an extension

Back in April, the Bank of England launched the Special Liquidity Scheme to combat this problem, so banks could be more confident about lending (to each other and to individuals). Basically, the Scheme lets them temporarily swap some of their debts for UK Treasury Bills, which make good collateral.

The Scheme was meant to run for six months, but it has now been extended until January 2009 ‘to provide additional time for banks to plan their access to the scheme in an orderly fashion’.

Special Liquidity Scheme – the goal

The Scheme aims ‘to improve the liquidity position of the banking system and increase confidence in financial markets’. In other words, it aims to provide two things that financial institutions are really looking for: the ability to lend and borrow money and the confidence to do so.

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Think Money specialises in finding secured loans for people with all kinds of financial backgrounds.