The availability of mortgages has soared to its highest level since the onset of the credit crunch nearly five years ago, according to Bank of England figures.
The Bank's latest credit conditions survey for the final quarter of 2012 credited the Funding for Lending scheme (FLS), introduced in August, with the rise in loan availability, and for driving down the cost of loans for homeowners and larger businesses. But the Bank said smaller firms were still reluctant to approach the banks for loans and had yet to see cheaper lending rates.
The Funding for Lending scheme was launched by the Bank last August and rewards banks and building societies with cheap funding lines in return for increasing their lending.
The survey showed the initiative having its biggest impact in the mortgage market, where a net balance of 26 per cent of lenders reported rising loan availability, the highest since the Bank began the survey in 2007.
Despite recent figures showing that lenders were slow to draw down FLS funds before Christmas, banks and building societies also expect a "further significant increase" in credit availability ahead, with would-be homeowners and buy-to-let investors keen to snap up loans. Barclays Capital's chief UK economist, Simon Hayes, said a recovering housing market inspired by FLS could help growth by boosting consumer confidence. But he added: "After all the talk of rebalancing it is a sign of how desperate the economic situation has become that a resurgence of the housing market might provide the best prospect for recovery. Even so, unbalanced growth is probably better than no growth, and the success or otherwise of the FLS could be a key determinant of the UK's economic performance in 2013."
The survey also bolsters hopes that a revival in credit conditions for business could lift economic growth.
A worrying 19 per cent of bank lenders reported that smaller companies, anxious about punitive lending terms, were applying in smaller numbers.