Breathing space for homeowners who’ve lost their jobs.

Homeowners struggling to pay their mortgages were given a reprieve by Gordon Brown yesterday when he unveiled a plan to let people affected by the economic downturn take a two-year mortgage interest payment holiday.

Eight banks and building societies, covering 70% of the mortgage market, have agreed to allow families struggling with mortgage payments the right to defer all, or part, of their interest payments for two years. The government will underwrite the scheme.

The prime minister said the scheme would cover any household which suffered a redundancy or “significant loss of income”. This would, for the first time, extend help to households where one family member loses their job and the other remains in work.

The Treasury plans for the scheme to apply to mortgages up to £400,000, and would probably kick in where the applicants have savings of less than £16,000.

The government has estimated that the cost of guaranteeing the delayed mortgage payments would add a £1bn contingent liability to government borrowing, but only cost £100m directly in eventual defaults. Building societies and banks would act as gatekeepers of the scheme, deciding whether the request to defer mortgage payments was justified. No definition of “a significant loss of income” was provided yesterday, but government officials said it might cover someone forced to take a less well-paid job or less in overtime. Source: The Guardian.