No quick fix on home loans, warns Darling

Under the scheme, banks will be allowed to swap their "high quality" mortgage debts for government securities.

But questions still remain as to whether the taxpayer risks being left footing the bill if these top-rated debts turn out to be worth less than thought.

The Government has been urging banks to pass on lower interest rates to homeowners.

But even Chancellor Alistair Darling admitted today that many households, struggling to make ends meet because of higher mortgage bills, could have to wait many months before they fall.

He said: "It will take time because banks are having to build up their capital positions. There is no quick fix."

Bank of England governor Mervyn King even appeared to defend banks not fully passing on the cuts in interest rates despite repeated pressure from the Government to do so.

He stressed that while the measures announced today made it more likely that interest rates cuts were passed on it was not aimed at a return to the " excessive lending of a year or more ago".

"It is certainly not part of the scheme to prevent desirable adjustments in the mortgage market from taking place," he added.

He stressed that when interest rates were rising before 2006, they were not always being reflected in higher mortgage rates.

"What has been happening in the last six months is that now we are cutting interest rates some of the reductions in Bank rate have also not been fully passed through to mortgage rates."

Alan Clarke, an economist at BNP Paribas, added: "This is not going to undo the harm that's already been done to the economy. It might just stop things getting any worse."

But the British Bankers' Association called the asset-swapping arrangements "an innovative and unique policy

response". A spokesman said: "The banks expect it to make a significant contribution to alleviating the pressures in the UK money markets."

The freeze in money markets has already claimed mortgage lender Northern Rock - nationalised in February - and US investment bank Bear Stearns, which was sold off after a cash crisis.

Today's mortgage rescue plan has no upper limit to the amount banks can swap for government debt and Mr King said it would depend on their needs.

He denied that the use of taxpayers' cash was to bail out ailing banks. "The purpose is to protect the rest of the economy from the banks," he said.

Banks wishing to take part in the scheme will be required to pay a fee, based on interbank lending rates, and assets would be swapped at a discount.

"This is a fair way of charging. This is not a gift," Mr King said but added banks were not being forced to take any action in return. The Bank of England said the risk of losses under the scheme would be carried by the banks.