The Funding for Lending Scheme was launched in the July 2012 in an attempt to drive down bank funding costs and increase mortgage and business lending.

But with the mortgage market now improving the Bank of England and Treasury have agreed to refocus the scheme solely toward business lending from 2014.

“Since its launch the FLS has contributed to a substantial fall in bank funding costs,” Bank governor Mark Carney said.

“This has fed through to significant improvements in household credit conditions. Credit conditions for smaller businesses have also improved, but to a lesser extent, and lending to businesses overall remains muted. Meanwhile a recovery has taken hold in the UK although it is still at an early stage.

“These positive changes in general economic conditions have been accompanied by a strengthening of the housing market. Although the growth in household loan volumes remains modest, activity is picking up and house price inflation appears to be gaining momentum.

“In light of these developments, you and I have agreed that we should refocus the FLS so that it continues to support lending to the business sector, without adding further broad support to household lending at a time when that is no longer necessary.”

Chancellor George Osborne said the government would continue to support the housing market in a more targeted way using the Help to Buy scheme.