The BoE has said that the scheme, which was due to end in January 2014, will now run until January 2015.
FLS has also had something of a revamp with increased incentives available for banks which lend to small companies and some non-bank providers of credit included in the scheme for the first time.
Both the extension to FLS and the overall revamp of the scheme has received a positive response from the industry.
Paul Smee, director general of the CML, said: "It is helpful to have early confirmation that the FLS will be extended for a further year.
“This will minimise the risk of disruption to lending flows that might arise in anticipation of the closure of the scheme.
"We welcome the indirect extension of the scheme to non-bank mortgage lending too. Although non-bank lenders cannot access the scheme directly any bank that lends to them will now be able to include that lending as eligible for inclusion in the FLS.
“This ought to result indirectly in the benefits of the FLS scheme being passed through to non-bank mortgage lenders."
However Richard Sexton, director of e.surv chartered surveyors, was more cautious: “It remains to be seen whether the beefed up scheme will be strong enough to tackle the three-headed beast of high inflation, constrained funding for banks and weak economic output.
“Lenders have already warned the credit bottleneck is so clogged that even an extended version of FLS won’t be able to clear the blockage.
“It is still a welcome move, but it won’t be a game-changer. It’s shame all the talk around the extension is about SME lending, rather than on making life easier for mortgage borrowers.
“Although mortgage rates are at record lows and mortgage lending has improved, criteria to access high LTV mortgages are still very tight, deposit requirements for affordable mortgages are still very high, and first-time buyer lending is still very low by past standards.
“With any luck, lenders will use the cheaper funds to ease mortgage criteria and lower deposit requirements.”
Bank of England figures suggest banks took nearly £14bn from the FLS between August and December last year.
