The City today welcomed the Bank of England's £50 billion funding package to ease the credit crunch - but warned that there is no magic cure for the housing market.

Experts said the decision by Threadneedle Street to allow banks to swap some of their mortgage-backed assets for Government bonds will help them strengthen their finances and restore confidence to the fragile banking system.

However, they reckoned that banks and building societies will continue to limit mortgage lending as the economy slows, with "riskier" borrowers such as first-time buyers or those without large deposits shut out of the market for some time to come.

Richard Lambert, director general of the CBI, said: "The scheme is not designed to bail out the mortgage market, though in re-establishing confidence in the whole financial services system, it should benefit as part of the wider process.

"The acid test will be over the coming weeks whether these measures can bring interbank rates more closely into line with Bank base rate."

Howard Wheeldon of BGC Partners said: "Clearly an unprecedented scheme such as this needs to be given time - and as an attempt to unfreeze the iced-up wholesale credit market system it is not without merit. For now, we can at least share in the overall welcome it has received from some, even if we cannot yet believe that this is the final solution for recovery in the ailing mortgage-bank system."

Philip Shaw of Investec said: "There is no single measure that will end the credit crisis on its own, but this should play a significant role in helping thaw out icy conditions in the credit markets."

Chancellor Alistair Darling gave the go-ahead to the scheme in the hope it will lead to cheaper mortgage lending and prevent a 1990s-style housing crash. Yet Bank Governor Mervyn King admitted "the Bank has no powers or authority to instruct the banks to do anything" as questions were raised over what could be done to reduce mortgage costs.

Howard Archer of Global Insight said: "It is important to be realistic about what this scheme can and should achieve. With the economic environment deteriorating, banks are likely to - and should - limit the amount that they lend anyway, even if liquidity becomes increasingly available and cheaper.

"While the scheme will hopefully provide some support to the housing market, through making it easier for banks to get funds for mortgage lending, it remains highly likely that house prices will fall this year and next. Indeed, a sharp correction is still very possible."

He said the scheme was "clearly a very welcome and important step in trying to restore confidence in the financial markets", but called for more transparency over subprime losses and steps to improve their balance sheets.

King said there was no upper limit on the amount banks can swap for government bonds and that the £50 billion was based on discussions with the major banks. "There is no arbitrary limit on it - it may well go higher," he said. "The purpose is to protect the rest of the economy from the banks."