The Funding for Lending Scheme has supported billions in new lending but analysts say the housing market is now strong enough to survive its withdrawal.
Mortgage lenders still have access to billions of pounds in cheap financing because they have only used a fraction of the allowances they have built up through the scheme.
Quarterly lending has hit its highest level since the Funding for Lending Scheme (FLS) more than a year ago, with Lloyds and Nationwide leading the charge, according to Bank of England figures published yesterday.
The two lenders made £5.8 billion of net new loans in the three months to the end of September, more than three times the £1.6 billion in the previous quarter, according to Bank of England figures.
This offset a fall in lending elsewhere, with RBS and Santander cutting lending by £6.5 billion and £12.6 billion respectively.
Despite this, scrapping the scheme will do little to stop the resurgent property market, said Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment.
“Bank of England Governor Mark Carney’s decision to redirect FLS away from real estate is a pea shooter shot across the bows. Banks are keen to expand mortgage lending and funding costs are dropping. If anything, redirecting FLS towards the more credit constrained small business sector is an easing move."
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), said supply and access to credit is far more plentiful thanks to FLS, which has brought about record mortgage rates and helped a nation of homebuyers rediscover its confidence.
Rates will rise next year, but by less than many expect. "The scheme’s departure from the mortgage market in 2014 is likely to mean rates increasing slightly in the next six to 12 months.
"But mortgage seekers are still in a far better position than they were a year ago and lenders will continue to take advantage of other routes to funding.
"Let’s not forget that before FLS was extended, mortgage lenders were already planning without it for 2014. The added impetus of Help to Buy should also ensure buyers with small deposits will continue to find competitive rates."
Weaning mortgage lenders off FLS shows the Bank of England is keeping a careful eye on the pace of growth in the mortgage market and will act to ensure the recovery is sustainable, Murphy said.
"If greater lending to businesses can successfully boost jobs and wages in the months ahead, it will help to ensure property remains an affordable purchase in 2014.”
Since FLS began, Nationwide made a total of £9.8 billion worth of new loans, followed by Barclays at £6.7 billion.
The scheme has supported a £3.6 billion increase in net lending since June 2012, most of which has gone into supporting mortgage lending rather than small and medium-sized businesses.
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