Banks and other lenders can start borrowing cheap money from Wednesday under the new Funding for Lending scheme.
The Bank of England's aim is to prompt lenders to make more money available to firms and households.
The first effects have been seen in the mortgage market where some lenders have slashed the cost of their long-term, fixed rate deals.
The scheme effectively supercedes the current National Loan Guarantee Scheme.
But the lower borrowing costs are, so far, are only benefiting people with large deposits.
Aaron Strutt, at mortgage brokers Trinity Financial, said: "Most deals attractive to first time buyers, such as those at 90% or 95% loan-to-value, have not changed yet."
'Quickly proving effective'According to the Bank of England, the Funding for Lending scheme is "designed to incentivise banks and building societies to boost their lending to UK households and non-financial companies".
Banks will given funding below market rates for an extended period in return for being watched on how they lend it to non-financial parts of the economy.
In the past couple of weeks several of the UK's biggest banks - NatWest, HSBC and Santander - have cut their mortgage rates to below 3% for new, five-year, fixed-rate deals.
How the scheme will work
- Banks and building societies can initially borrow up to 5% of the amount they currently lend
- They will be charged just 0.25% interest, much lower than the going rate
- They can borrow more than 5%, only if they increase their overall lending
- If they decrease lending, the interest rate will increase up to 1.5%
- Any losses on the loans will be borne by the banks, not the taxpayer or Bank of England
- Lending levels to be monitored by the BoE
These are the lowest long-term mortgage rates yet seen in the UK, although they are only available to the small minority of borrowers who can put down a 40% deposit.
Ray Boulger of mortgage brokers John Charcol said: "It is already clear that, in stark contrast to Project Merlin, the Funding for Lending Scheme is very quickly proving effective as far as the mortgage market is concerned."
The scheme will reportedly replace the £20bn National Loan Guarantee Scheme, launched in March, though the scheme will not be axed.
Labour's shadow Treasury minister Chris Leslie said the winding down of the previous scheme was a blow to Chancellor George Osborne's "dwindling credibility".
"Despite promises from ministers, net lending to businesses has fallen in every month of this government," he added.
"And there are serious questions about whether the new Funding for Lending scheme will really see lending to businesses become cheaper and easier to access."
Hoarding complaintsThe purpose of the Bank of England's scheme is not just to inject some life into the moribund property market.
Its aim is to make cheaper loans available to small and medium-sized firms, outside the financial sector.
They have complained for several years that the banks are hoarding cash rather than lending, even to relatively-safe borrowers.
Official figures show that lending to non-financial firms has indeed been falling, a trend that the Bank of England would like to reverse.
In the past four years the stock of outstanding loans to non-financial companies has shrunk by 17% from its peak, to £420bn in June this year.
Last week the RBS group, which includes NatWest, announced that it would take advantage of the new scheme.
It will cut the interest charges on loans worth £2.5bn, which it expects to make available to small and medium sized businesses.
The interest charge will be cut by an average of one percentage point, the bank said.
So far though, there is little evidence that small firms are benefiting.
"We have had no feedback yet," a spokesman for the Federation of Small Business told the BBC.
