The £200 million scheme is one of a range of measures the Government is putting in place to help ensure repossession is always a last resort.
The scheme is targeted at the most vulnerable households, those on incomes of less than £60,000 a year who would be entitled to be re-housed under homelessness legislation. These would be people who are elderly, disabled or those with children.
Households will be able to apply to their local authority for two options to help them remain in their homes, depending on their circumstances.
They will either be able to sell a share of their home to a housing association, enabling their monthly mortgage payments to be significantly reduced, or they can sell the entire home to a housing association and remain in the property as tenants paying a subsidised rent.
The scheme, which is expected to help up to 6,000 households avoid repossession over the next two years, is being expanded to all local authority areas in England from today, following its early introduction by 80 councils in December.
In addition to mortgage rescue, the Government has taken a number of measures to support households at risk of repossession. Last week, changes came into effect on Income Support for Mortgage Interest (ISMI), cutting by two thirds - from 39 to 13 weeks - the time before homeowners who lose their jobs receive financial help with the interest payments on their mortgage. The Homeowner Mortgage Support Scheme, which will allow households who suffer an income shock to defer part of their payments for up to two years, is also being urgently developed with lenders.
Housing Minister Margaret Beckett said:
"We know that some families are worried about their mortgage payments right now, and we are determined to do everything possible to ensure repossession is always a last resort. For the most vulnerable households, the mortgage rescue scheme will be available across England to help ensure they can remain in their homes.
"This is part of a range of measures the Government is putting in place to help households at risk of repossession in the current climate. As well as expanding free debt and legal advice, we have increased the support available for people who lose their jobs, and are introducing the option for homeowners to defer part of the loan to give them the time they need to get back on their feet.