Funding for Lending scheme scrapped for homebuyers

The Funding for Lending scheme gave banks and building societies access to cheap cash which they could then pass on as cheaper mortgages.

Housing market experts say it could spell the beginning of the end for rock-bottom mortgage rates. (See our Free Mortgage Guide and Remortgage Guide to cut the cost of your borrowing.)

Bank of England governor Mark Carney says rising property prices mean it is no longer needed, and that the bank is taking action to stop the property market becoming overheated. The scheme will now be focused on helping small business borrow.

The move comes as the bank revealed its twice-yearly Financial Stability report, which assesses what could happen to the economy in the future.

It includes the possibility that the housing market could overheat. But that while the bank did not see any immediate threat, Carney admits the "concern is where this could go". He adds that scrapping Funding For Lending would "help keep the housing market on a sustainable path".

Carney says: "By acting now in a graduated fashion, authorities are reducing the likelihood that larger interventions will be needed later."

But he adds: "We are prepared to take larger measures later if that becomes necessary."

'Danger for households'

The bank's Financial Policy Committee says house price rises are already "above historical average" on some measures. Carney says there is a danger for households where "they stretch and they stretch and they stretch" to afford a home.

It brings to a close a period when the market has been spurred on both by Funding For Lending and the Treasury's Help to Buy scheme, which guarantees home loans for buyers with small deposits.

David Hollingworth, of London and Country Mortgages, says it is a "significant" development for borrowers who have become used to ultra-cheap deals.

Before Funding for Lending, two and five-year fixed-rate deals had been about one percentage point higher than they are now.