The move, likely to be announced by Peter Lilley, the Social Security Secretary, next month, follows a number of highly publicised cases in which public funds have been used to help people paying off very large loans.
Last month it was disclosed that social security payments were covering a pounds 1,800-a-week mortgage on a mansion in Haslemere, Surrey, owned by Trevor Deaves, who made a fortune as chairman of an insurance group in the 1980s. Mr Deaves was paying off a loan of pounds 832,500.
At present, people on income support are entitled to help for up to a year if they have savings of less than pounds 8,000 and make efforts to find cheaper accommodation. But, with the property market in recession, owners of large homes have been able to argue that their properties are unsaleable.
Ministers are discussing a cut- off level for the Department of Social Security's acceptance of responsibility. Mr Lilley is believed to favour about pounds 200,000 while the Treasury is pressing for pounds 100,000. But neither department is pressing for retrospective restrictions. Once discussions are over, Mr Lilley will announce the changes in a statement to the Commons, probably within two weeks.
The Government pays more than pounds 1bn a year to help people pay mortgages. More than 400,000 homeowners receive state aid, including more than 3,000 with mortgages of pounds 100,000 or more.
But the publicity given to subsidies for those with very expensive properties has embarrassed ministers, given the Government's determination to curb public spending. They believe that people should be encouraged to take out or extend mortgage insurance against redundancy.
The current controversy began in 1991 with revelations that the state was meeting payments of pounds 1,784 a week for Peter Julien, an unemployed interior designer, on his home in Hampstead, North London. Mr Julien's mortgage amounted to pounds 630,000.