The Bank of England’s 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 qualify 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 as a result, the FLS is not needed for mortgages.
It says there will be 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: “The changes 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.”
Chartwell Funding managing director Robert Winfield says: “This will only serve to push up mortgage rates. The Bank has acted too soon. But when you look at what is fuelling demand, it is mortgages rather than business loans.”