Ratings agency Moody's has warned that the UK lenders would face funding challenges in the coming years due to government’s plans to withdraw schemes that have been supporting bank borrowing and mortgage markets.

The end of government schemes such as Special Liquidity Scheme and Credit Guarantee Scheme could give birth to refinancing difficulties for homeowners and slow growth in housing market.

Securities backed by residential mortgages will also suffer in case over 300 billion pounds in UK government aid cannot be replaced with funds from the private sector.

Commenting on the issue, Ed Stansfield from Capital Economics said, “Any shortfall in funding will leave lenders with no choice but to shrink their balance sheets.”

Many building societies will have to struggle hard to survive after the expiration of the government-backed funding.

The government-backed Special Liquidity Scheme and Credit Guarantee Scheme are due to expire by the end of 2014.