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The new Homeowner Mortgage Support Scheme will enable households that experience a significant and temporary loss of income as a result of the economic downturn to defer a proportion of the interest payments on their mortgage for up to two years. The government will guarantee the deferred interest payments in return for banks' participation in the scheme.

The government will work with lenders over the coming days to develop the scheme in detail, with a view to it being available to customers early in the new year. The country's eight largest banks have already pledged that they will work with the government to implement the scheme.

The Chancellor said: "This is real help for homeowners at risk of repossession through no fault of their own. The scheme will give people who face a temporary fall in their income the confidence that they need to rearrange their finances so they can come through a difficult period without losing their home."

The eight largest lenders covering 70 per cent of the mortgage market - HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, RBS, HSBC - have agreed to support the new scheme.

The deferred payment will be rolled up and added to the principle, with the borrower paying this off when their financial circumstances improve, maintaining an affordable monthly payment by extending the term of the mortgage. The government will guarantee lenders against the loss of deferred interest payments.

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