The Government and the Central Bank have unveiled unprecedented measures to tackle the mortgage arrears crisis.

The steps put greater emphasis on writing down debt, while acknowledging some borrowers will have to volunteer to surrender possession of properties.

Banks will be forced to reach sustainable solutions with 20% of borrowers in arrears by the end of July.

That figure will increase to 30% by the end of the third quarter of 2013 and 50% by the end of the year.

Financial Regulator Matthew Elderfield told a press conference this afternoon that he expects repossessions to "rise significantly".

Mr Elderfield also said that early engagement between the bank and the borrower is critical for a resolution.

He said that "some form of debt relief makes sense but it is up to each bank".

The Central Bank has also started a consultation process on the code of conduct on mortgage arrears.

That will see the restriction that blocked banks from making more than three unsolicited contacts with customers per month dropped.

The Central Bank has not found the banks were harassing customers in its site visits to banks, but was concerned that the limited contacts were hampering lenders dealing with arrears.

The new policy will see borrowers afforded breathing space to deal with banks while blocking banks from harassing customers.

Significantly, as part of the new targets for banks, regulators are openly asking lenders to include debt forgiveness if it is appropriate.

In the Central Bank's definition of a sustainable solution, it includes repayment of "a revised principal sum" - in other words some of the debt being written down if the bank offers a deal to a customer.

The Central Bank hopes to increase the use of split mortgages.

This would see a home loan divided into two parts, with the customer paying the first part and the second part would be parked without interest accruing in some circumstances.

In some cases the second part would be written off at the end of the term of the home loan.

However, it would be up to individual banks to determine if this would be appropriate.

If a new sustainable solution cannot be reached with the bank, the borrower has the option to use the personal insolvency arrangements, which will be operational in June.

If banks fail to restructure loans they will have to write-down the loans to value of the loan to repossession value of the property.

That will require banks to set aside more capital for loans in arrears.

The measures will cover AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC.

Almost 12% of owner occupier mortgages are in arrears.

In a statement, AIB said it welcomed the measures.

AIB CEO David Duffy said: "The bank is wholly committed to working with customers in difficulty on a case by case basis in a collaborative process aimed at reaching agreement.

"In cases where customers are engaging openly and fully with the bank in reaching a solution, our policy is that, where mortgage repayments are being prioritised, the bank will seek to keep people in their homes wherever possible."