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Extended collateral term repo facility should boost property market

Normally the Chancellor takes the headlines [at the Mansion House]. But his announcement that he is going to implement a watered down version of the Vickers report to regulate banks was hardly sexy. And it is not clear that a new framework which will cut bank lending and add to the costs of banking for each household by up to £250 a year is exactly what is required as the economy slithers into crisis.

So the Governor indicated that up to £140billion of what is effectively another form of QE more closely targeted at bank lending would be made available.

The Treasury have indicated that they think that the scheme will be a success if it leads to an additional £80billion of lending. Although the BBC was full of siren voices [this morning] predicting failure, I am not so sure.

I doubt if the mechanism will have more than a marginal impact on most forms of corporate lending. But it might have an effect in two areas: commercial property and home mortgages.

The UK still has a lively commercial property market despite the state of the economy and this additional access to money looks to be highly suitable to provide additional finance for the sector.

And by making mortgage lending more easily available, it will be possible for lenders to edge up loan to value ratios which could slash the deposits required from first-time buyers by as much as a quarter.

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