The Bank of England Funding for Lending scheme is being scrapped for mortgages from January in a bid to prevent a housing bubble.
The scheme was originally planned to last until January 2015 but mortgage loans will no longer be able to access it from January. It will still apply for business loans until 2015.
The FLS has slashed mortgage rates and boosted lending significantly since its introduction in July 2012.
The Bank of England says credit conditions for smaller businesses have also improved, but to a lesser extent, and overall lending to businesses remains muted.
The Bank says activity in the housing market is picking up, house price inflation appears to be gaining momentum and FLS is not needed for mortgages.
It says there is no impact on Help to Buy which is designed to help borrowers with lower deposits access funding, whereas the aim of the FLS is to boost lending.
The FLS extension will provide continued support for lending to businesses in 2014, with incentives in the scheme skewed heavily towards lending to small and medium-sized enterprises.
The Treasury select committee has criticised the scheme for focusing too heavily on mortgages and not enough on boosting business lending.
Bank of England Governor Mark Carney says: “Over the past year the FLS has contributed to the recovery by helping to significantly improve credit conditions, especially for households. The changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”
Chancellor George Osborne says: “The FLS proved to be a successful tool in supporting the recovery. Now the housing market is starting to pick up, it is right we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That is why we are reforming the banks, introducing the employment allowance and now focusing the FLS to support them”.