Homeowners who lose their jobs or suffer a severe drop in earnings are to be allowed to defer their mortgage interest payments for up to two years, Gordon Brown announced yesterday.

The emergency state guarantee will help people on upper and middle incomes stave off repossession. Those with loans of up to £400,000 will be able to cut payments, with the taxpayer underwriting the risk of default.

Eight big lenders, accounting for 70 per cent of the market, have signed up to the £1 billion plan.

Borrowers hit by a sudden drop in income could reschedule their mortgages to reduce monthly repayments.

The sum forgone by the banks would be added to the mortgage and have to be repaid when the holder’s circumstances improved. If the homeowner defaulted despite the extra help and had to be repossessed, the Government would pay the interest deferred.

The deferrals will be available to customers of HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC.

Mr Brown made the hastily prepared announcement in a Queen’s Speech debate that had been overshadowed by a statement from Michael Martin, the Speaker of the House of Commons, on the police raid on the office of Damian Green.

Mr Martin disclosed that the police had entered Mr Green’s Commons office without his permission or a search warrant. The police said that they had written consent from Jill Pay, the Serjeant at Arms, who is in charge of security. With passions in the chamber running high, Mr Martin promised to establish a committee of seven senior MPs to inquire into the seizure of Mr Green’s property after his arrest.

The repossession announcement, which appeared to catch some banks by surprise, was at the heart of his Commons speech and intended to show that the new 14-Bill programme was about helping people through the recession. Officials said that the Government’s liabilities if people defaulted en masse could be £1 billion. The Treasury estimates that the more likely cost will be about £100 million.

Mr Brown told MPs: “Hardworking households that experience a redundancy or significant loss of income as a result of the downturn will be able to defer a proportion of their interest payments for up to two years while they get their finances back on track.”

He added that the government-owned lenders Northern Rock and Bradford and Bingley would not begin repossession proceedings until households were six months in arrears. Last week, the major lenders formally agreed to a minimum three-month delay before starting repossession proceedings, although they argued that this was standard practice anyway.

Estimates from the Council of Mortgage Lenders suggest a sharp rise in repossessions to 75,000 next year. That would be almost as many as in 1991, at the peak of the last recession. The council believes that repossessions will hit 45,000 this year.

Currently, people with mortgages below £200,000 have their interest payments covered for two years if they are on benefits. The Government’s plan is effectively a mortgage insurance scheme, underwritten by the Treasury. The banks will not need extra capital and in theory it will not reduce the funds available for other borrowers.

George Osborne, the Shadow Chancellor, said that the key would be how much interest would be deferred. Nick Clegg, the Liberal Democrat leader, said that his party had been proposing such a policy for months.