Lloyds Banking Group is set to pledge billions of pounds for extra mortgage lending in return for the government dropping its £480m interest bill.

The government is keen to find quantifiable ways of ensuring increased lending and is prepared to convert £4bn of preference shares if the bank will commit to increasing lending in a bid to combat the recession, which is somewhat fuelled by the lack of availability of credit.

This comes just days after Northern Rock announce plans to increase mortgage lending to £14bn over the next two years, confirming that the government sees the mortgage industry as key to steering the economy through these turbulent times.

All good news for those seeking a mortgage loan.