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Shares in housebuilders have risen on news that the government is to take forward a scheme to underwrite banks' lending, which is seen as key to re-establishing a functioning mortgage market.

A statement from the Treasury this morning confirmed that the government will roll out a proposal by Sir James Crosby to underwrite billions of pounds of asset-backed debts, as part of a wide-ranging package of measures designed to slow the deepening recession.

The proposal will see the government take the risk on the highest-rated, 鈥淎AA鈥� debt, in order to free up banks to start lending on new mortgages. At present banks are restricted from lending because of regulation that means they have to hold a certain amount of assets compared with their liabilities.

Crosby proposed that the government underwrite 拢100bn of loans, but the Treasury has not given a figure. The statement said only: 鈥淭he government will work closely with the industry and keep the scope of the scheme under review.鈥�

Housebuilders see the move as vital to get the mortgage market moving again, with net lending being predicted to fall to zero this year. Shares in Barratt rose almost 5% on the news, while Persimmon went 3% higher. Berkeley shares also rose 3%.

A spokesman for the Home Builders Federation said: 鈥淲e very much welcome this announcement. However, we now need to look at the detail and see how it might be implemented in practice.鈥�

In addition, the government said it will halt the winding-up of nationalised lender Northern Rock's mortgage book. The Treasury said: 鈥淭he government can confirm that Northern Rock is no longer actively pursuing a policy of rapidly reducing its existing mortgage book.鈥�

The moves were made as part of a package of measures that include allowing the Bank of England to purchase high-quality assets, offering a capital and asset protection scheme for banks, and extending the terms of the credit guarantee scheme.