Dec. 1 (Bloomberg) -- Royal Bank of Scotland Group Plc, the largest bank controlled by the U.K. government, said it will wait at least six months before foreclosing on delinquent mortgages.

The waiting period applies to all homeowners, including those already late on payments, an RBS spokeswoman said today. The policy will remain in place until at least the end of 2009, the Financial Times reported earlier today.

The U.K. is urging banks to keep lending to consumers and small businesses as a shrinking economy and higher unemployment helped push up repossessions by 12 percent in the third quarter. London-based RBS, which has a 7 percent share of Britain’s mortgage market, sold a 58 percent stake to the government when it raised 20 billion pounds ($31 billion) in new capital last week.

“The impact is tiny for RBS,” probably about 50 million pounds before tax, said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an who has an “outperform” rating on the stock. “If all the banks together acted to lend more, that will be good for the economy and ultimately good for the banks. I would not regard this as the thin end of the wedge in terms of government influence.”

Britain’s biggest mortgage lenders agreed to wait at least three months after buyers fall into arrears before repossessing homes, according to Chancellor of the Exchequer Alistair Darling’s pre-budget report to Parliament on Nov. 24.

“It’s not of enormous significance, as banks normally wait nine to 10 months before repossession,” said Bruno Paulson, an analyst at Sanford C. Bernstein in London. “With low interest rates, the cost of waiting is lower, and banks don’t want to repossess, as they have to then sell the property.”

‘Back on Track’

RBS competitors may face pressure to follow its move on foreclosures, Paulson said.

HBOS Plc, the U.K.’s biggest mortgage lender, will “look at the initiative,” said spokesman Shane O’Riordain. “We already have a comprehensive program in place for borrowers in financial difficulties,” he added.

Nationwide Building Society doesn’t plan to extend its respite period beyond three months, said spokeswoman Katie Price.

Northern Rock Plc, the Newcastle-based lender nationalized in February, has an average waiting period of 15 months and doesn’t plan to introduce a specific pledge, said spokesman Brian Giles. Less than 1 percent of its repossessions are implemented before six months of arrears, he added.

“We tend to take at least six months to get customers back on track anyway, except when it’s not in their best interests,” said Eleanor Ross, a spokeswoman for Lloyds TSB Group Plc. Lloyds may seek to sell properties more quickly when there is little equity in the property and prices are falling, added Ross.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: December 1, 2008 09:41 EST