“He’s not holding a pistol to their heads, but he wants to do everything he can to help people get on the property ladder,” a Treasury source said.

Vince Cable, the Liberal Democrats’ Treasury spokesman, said: “We cannot have a situation where the banks are able to privatise their profits and nationalise their losses.

"Since the mortgages from the banks are of inferior quality and higher risk than the government bonds which they are replacing, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right.”

A spokeswoman from the British Bankers’ Association said: “In principle, if this is an injection of liquidity, we are all in favour. We have been supportive of the Bank’s moves in recent months but, if as reported, the Bank and the Government are now moving to provide significant and sustained liquidity we are very supportive.”

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The association denied that the plan was a bailout for lenders.

“Banks are not being bailed out," it said. "hey are paying commercial rates for the loans offered by the Bank of England.”

The Council of Mortgage Lenders said that more detail was needed before it would become clear how much mortgage borrowers would benefit.

Michael Coogan, the director-general, said: “It is still not clear if specialist lenders or smaller lenders who do not have mortgage-backed securities will be involved.

"Also, we have to wait and see what the rates on the Bank’s loans will be, and how those funds will then be recycled into the mortgage market through pricing and products.”

The council is also set to press for more state support for homeowners who fall into arrears with their mortgage payments.

There are fears that smaller building societies, almost 20 per cent of which have either had to withdraw from the mortgage market or stop offering the majority of their deals, could be left in dire straits as the bigger banks get a leg-up from the Bank of England.

The majority of building societies do not issue mortgage-backed securities, so are unlikely to benefit from the Bank’s latest move.

Despite a sharp rise in deposits in building societies in the wake of the run on Northern Rock, many of the smaller mutuals are finding it nearly impossible to offer competitive mortgages as they are overwhelmed with demand.

A spokeswoman from the Building Societies’ Association said: “Some societies were inundated with applications, and had to restrict their lending to local areas.”

An industry source said that the plight of the smaller building societies was not being helped by more onerous liquidity requirements being enforced by the City watchdog.

It is understood that while many societies have plenty of cash they are not able to offer as many loans as they would like in order to meet liquidity requirements.

Bath and Earl Shilton societies withdrew temporarily from the market a month ago.

Since then, a further six — Harpenden, Loughborough, Monmouthshire, Vernon, Ecology and Stafford Railway — have all stopped selling home loans. A further seven have only one or two deals left.

A rise in the popularity of cash appears to be one consequence of the economic conditions.

Cash was used for 60 per cent of all retail sales last year, up from 54 per cent in 2006.