The European Commission approved a British mortgage support scheme aimed at reducing the number of repossessions likely to occur as a result of the economic downturn.

The scheme will allow households that are unable to meet their mortgage repayments following a temporary drop in income to defer all their principal and up to 70% of their interest repayments for a period of up to two years.

In return, the UK will provide the lender with a guarantee on part of the deferred interest, a Commission statement said.

"It is appropriate that, in the midst of the current financial crisis, help is given not just to banks but also directly to individuals that are in difficulty as a result of the downturn," Competition Commissioner Neelie Kroes said.

Under EU rules, the Commission has to approve state aid to determine whether it distorts single market rules and competition in the 27-nation bloc.

The Commission also approved a measure adopted by Luxembourg to limit the adverse impact of the financial crisis on export firms.

The export-credit agency concerned, Ducroire Luxembourg, will provide export-credit insurance to complement insurance policies taken out with private insurance companies.