Brown unveils mortgage interest deferral scheme

LONDON (Reuters) - The government will guarantee a scheme to allow households suffering a temporary loss of income due to the downturn to defer interest payments for up to two years, Prime Minister Gordon Brown said on Wednesday.

He said Britain's eight largest banks have agreed to take part in the scheme, designed to prevent a surge of repossessions as the economy weakens.

"This measure will extend protection for those in work as well as those out of work and be available at a higher level of income," he told parliament.

"We will make this possible by guaranteeing lenders against the risk of loss from those deferred interest payments," he said.

Brown also said a voluntary code of conduct for banks would be made statutory. News reports have said this could allow banks to be fined if they did not treat customers fairly.

(Reporting by Christina Fincher; Editing by Adrian Croft)