New guidelines issued by the Central Bank on December 6, 2010, also prevents banks from imposing arrears charges or extra interest on people who are in arrears and co-operating with the banks.

And in a bid to stop banks harassing customers who are behind on payments, the Central Bank has also told banks they cannot make more than three unsolicited communications to those in default.

The new guidelines are designed to stop a new wave of toxic debt tipping the country into further debt.

Some 40,000 home owners are three months or more behind on their home-loans but another 30,000 have renegotiated their payments.

The code, which is legally binding, will apply to mortgage lenders from January 1.

Lenders have also been banned from forcing people off tracker mortgages if they want to restructure their payments.

The new code reinforces the existing code which prevents banks from seeking repossession until 12 months after a home-owner goes into default.

Under the new rules, banks will not be able to seek repossession if they have made arrangements for alternative payment schemes with the mortgage holder.

Banks are being encouraged to look at arrangements including the following:

• Switching to interest-only payments for a suitable period

• An interest-only and part-capital repayment option for a suitable period

• A mortgage holiday – enabling someone in difficulty to stop paying all or part of their mortgage for a number of months or years until they are back on their feet

• An extension in the mortgage repayment period – this will increase the overall payments over the period of the mortgage as interest has to be paid for longer, but it will decrease the monthly payments.

Borrowers can also appeal decisions by banks on their cases to an internal appeals board which banks must set up.

Independent brokers' group PIBA said that while the overall code was positive, the appeals process lacked independence.

Irish Mortgage Corporation director Frank Conway said the new code represented a much more pragmatic approach to help mortgage holders who were financially vulnerable. He particularly welcomed the plan to cater for mortgage holders who were not currently in arrears but were at risk.

December 6, 2010: The full mortgage arrears code of conduct

November 9, 2010 Unemployed may have their mortgages parked