But the scheme could hit new lending

Mortgage lenders have warned however, that the plan to offer struggling homeowners a holiday for up to two years from paying their interest repayments is unworkable and will result in new applications being turned down. In response to a consultation by Communities and Local Government over the plan, the Council of Mortgage Lenders said that every repossession they put off for a year, up to 80 new loans would be refused as lenders will need to set aside more capital to support borrowers. Other lenders have also questioned whether the scheme would be effective in helping reduce the threat of repossession, warning that if house prices fall further it will leave borrowers unable to recover their financial position when the deferral finishes.