Housing loans removed from scope of Bank of England's Funding for Lending programme

The policy change (2-page / 53KB PDF) will apply from 1 February 2014, when the scheme was originally meant to come to an end. The Government had previously announced that FLS, which offers cheap central bank funding to commercial banks provided they pass on cheap loans to homebuyers and businesses, will now run until the end of January 2015.

Bank of England Governor Mark Carney said that the changes would "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".

The changes will have no implications for the Help to Buy scheme, as this had been designed specifically to make it easier for those without large deposits to access mortgages rather than boost lending more generally, according to the announcement.

The FLS began on 1 August 2012 and was originally scheduled to run for 18 months. The scheme allows banks to borrow from the Bank of England at cheap rates, which are reduced the more that they lend to households and businesses.

From next year, the revised scheme will only provide lending to businesses, with incentives skewed heavily towards the provision of loans to small and medium-sized enterprises (SMEs). Banks will be able to borrow £5 for every £1 that they lend to SMEs, and fees will be set at a flat rate of 0.25% above the base rate - the lowest rate on the previous fee scale.

Although there has been only "modest" growth in the number of housing loans made since the scheme began, activity in the market and house price inflation appeared to be "gaining momentum", according to the announcement. The change in policy comes at the same time as concerns from the Treasury Committee and the press that the Help to Buy mortgage guarantee scheme could lead to a housing bubble, as well with as the Bank of England's role with regards to the scheme.