He said home-owners should be encouraged to take out private insurance against job loss.
"It is right we should try to move from a system which at present leaves 70 per cent of people with mortgages, who may find themselves unemployed or without an income, uncovered by the existing state system.
"We want to try to move to a system whereby all new home- owners do have protection and cover against the risk of losing their job," he said.
He said the current system was costly and failed to help the majority of those who fell into difficulties with payments.
Donald Dewar, Labour's social security spokesman, said Government plans would mean a minimum of 40 per cent of home-owners would have to find "significant additional costs" in order to have private insurance cover.
He called on Mr Lilley to "drop the plan", warning it would lead to increased housing market uncertainty.
Mr Lilley replied: "You have failed to tell us what your policy towards home-owners is, yet you tacitly criticise us because there may be some small cost as far as 40 per cent of home owners are concerned."Reuse content