BORROWERS can expect a fall in mortgage rates as early as next week, industry experts have predicted.

It comes as a result of a new Government scheme aimed at boosting bank lending that was outlined yesterday.

The £80 billion Bank of England and Treasury-backed funding for lending programme is aimed at jump-starting lending to first-time home buyers and small businesses in particular. The plan is intended to allay fears that banks are holding back after seeing their own funding costs rise due to the eurozone crisis.

Ray Boulger, senior technical manager at mortgage broker John Charcol, told The Herald: "It is a positive for the mortgage market as a whole - I expect more lenders to cut their fixed rates in the next week or so."

He said that, with mortgages typically taking upwards of two months to arrange, rates could change almost immediately ahead of the scheme's formal August launch.

He said there had already been a modest impact on swap rates – the rates at which banks lend to each other and which are used to fix mortgage rates – with five-year rates falling from 1.37% to 1.12% since the Government set out its plans four weeks ago.

Several lenders have cut their fixed rate deals in recent weeks, Mr Boulger added, with HSBC yesterday unveiling a five-year deal at 2.99% – although it comes with large fees and deposit requirements. However, he said variable-rate deals might not change as much.

Banks themselves remained circumspect about the likely impact, saying they are waiting for further details of the scheme.

However, industry sources suggested some banks will unveil lower mortgage rates as early as next week.

A spokesman for Lloyds Banking Group, owner of Bank of Scotland, said: "We remain keen to participate in the "funding for Lending" scheme, as part of our strategy to support our customers and the UK economy.

A Royal Bank of Scotland spokesman said: "We welcome the scheme and the opportunity to provide cheaper finance for our customers."

There had been worries that smaller institutions could be excluded from the funding plan but the Government has indicated that it wants a wide range of institutions to participate.

Alexa Henderson, chairman of the Scottish Building Society, said: "We are always looking for further ways to support people wanting to buy their own homes, so we will be working with other mutuals to work out what the details announced mean for us."

Downing Street downplayed yesterday's announcement. Asked if David Cameron was confident that the move would solve the problem of lending to small businesses, the Prime Minister's spokesman said: "There are already schemes in place [to help ease the situation] and there are more being announced today".

Meanwhile, business groups warned that banks would have to show willingness to lend to a wider range of companies if smaller firms are to benefit.

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