c.2013 New York Times News Service

c.2013 New York Times News Service

LONDON — In a surprise step aimed at keeping Britain’s housing market from overheating, the Bank of England on Thursday scaled back a government program that encouraged mortgage lending.

Mark J. Carney, governor of the Bank of England, said the central bank and the Treasury had agreed that it was best to no longer support new lending for mortgages and other uses through the Funding for Lending program, and to focus on new loans to businesses instead. The changes would be effective at the beginning of the year.

The government said the changes would not affect a separate program aimed at helping people obtain mortgages, called Help to Buy.

“Although the growth in household loan volumes remains modest, activity in the housing market is picking up and house price inflation appears to be gaining momentum,” the Bank of England and the Treasury said in a joint statement Thursday. “As a result, there is no longer a need for the Funding for Lending scheme to provide further broad support to household lending.”

Under the Funding for Lending program, banks get access to cheaper funding depending on how much more they lend. The total amount of funds made available under the program was 17.57 billion pounds, or about $28.7 billion, at the end of June, according to the Bank of England.

The step is the first by the Bank of England aimed at cooling what many economists have warned could be the beginning of a new property bubble in Britain. In addition to the Funding for Lending program, the government started this year the Help to Buy program, which reduced the deposit required by banks to get a mortgage. Thousands of aspiring homeowners applied.

Howard Archer, an economist at IHS in London, said that scaling back the Funding for Lending program was “hugely sensible and justifiable.”

“A steadily improving housing market is supportive to economic activity and growth prospects,” he said. “However, it is vitally important for economic stability and longer-term growth prospects that a new housing price bubble does not develop.”

Although Funding for Lending was widely considered a success, the Labour Party, in the opposition, had raised questions about its effectiveness in making more credit available for smaller businesses.

Cathy Jamieson, the Labour spokeswoman for economic policy, said the change to the government program was “an admission that the Funding for Lending scheme has badly failed Britain’s businesses.”