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More than 1.8million homeowners have taken three-month breaks from their monthly loan repayments since Chancellor Rishi Sunak announced the measure in March.
The support was due to expire at the end of next month but will now be extended until the end of October.
Some homeowners will also be able to resume mortgage payments at a lower rate temporarily under the scheme.
A ban on home repossessions will also be extended for the same period.
John Glen, the Economic Secretary to the Treasury, said: “We’re doing everything we can to help people with their finances at this difficult time, and that includes making sure people get the support they need with their mortgages.
“That’s why we’re working with the banks and lenders to extend payment holidays if people need them.
“Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan.
“But if they are still struggling, I want them to know that help is there.”
Homeowners already taking a mortgage holiday will be able to lengthen the break for up to another three months while new applicants will also be able to apply for the scheme under the extension.
Treasury officials are advising homeowners that re-starting mortgage payments as soon as they can afford to is in their interest because they will still have to pay the full cost of the mortgage eventually and could end up paying more in the long run.
The Financial Conduct Authority (FCA) yesterday published new guidance today for banks and other lenders explaining their obligations under the Treasury scheme.
Christopher Woolard, the interim chief executive at the FCA, said: “Our expectations are clear – anyone who continues to need help should get help from their lender.
“We expect firms to work with customers on the best options available for them, paying particular attention to the needs of their vulnerable customers, and to provide information on where to access help and advice.”
He added: “Where consumers can afford to re-start mortgage payments, it is in their best interests to do so. But where they can’t, a range of further support will be available. People who are struggling and have not had a mortgage payment holiday, will also continue to be able to apply until 31 October.”
Lenders will be expected to contact homeowners who are nearing the end of their existing mortgage holiday to discuss the next steps forward.
The customers will be offered a choice between extending the payment break, resuming full or partial payments or temporarily switching to an interest-only mortgage.
Borrowers who choose to resume with their mortgage payments will be given options on how best to do so including extending their mortgage in order to keep the monthly cost at the same level as before the mortgage holiday.
The Financial Conduct Authority yesterday launched a brief public consultation process on the extension, inviting comments on the move to be submitted by 5pm next Tuesday.
The Money Advice Trust, the charity that runs National Debtline and Business Debtline, yesterday welcomed the extension of the mortgage holiday scheme but called for extra support for renters struggling with housing costs in the coronavirus crisis.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “It is essential that relief measures are withdrawn in a slow, cautious and co-ordinated way, and today’s news – along with the recent extension of the Job Retention Scheme – are encouraging signs that this is the approach the Government intends to take.
“More help for people with mortgages must be followed, however, by action to support private renters.
“People in private rented accommodation are among the most exposed to financial difficulty in the wake of the outbreak, and the Government should listen to calls to help people meet their rent payments by increasing the Local Housing Allowance rate to cover 50% of average market rents.”
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