Osborne unveils plan to kick-start lending by banks – How does it affect you?

The Chancellor has used his annual Mansion House speech to announce a scheme to kick-start lending by banks.

At the event in the City of London, George Osborne said he would work with the Bank of England on a plan to provide billions of pounds of cheap credit to banks, in an attempt to stimulate lending to households and businesses.

He said the measure would help defend the UK economy from the eurozone crisis on Britain’s doorstep. Click here for the video of his speech.

So, how does this effect you?

At the heart of the package is a Bank of England “funding for lending” scheme to cut bank funding costs in exchange for lending commitments. The Treasury claims the programme, designed to address the rising costs of loans and mortgages, could support an estimated £80bn in new loans.

The “funding for lending” scheme is to become operational “within a few weeks” and will provide long-term funding for banks at below-market rates.

Of course the question that everyone is asking is, how much of the benefits will the banks pass on to their customers?