City watchdog slams lenders for evicting families too quickly as repossessions rise by 40 per cent

The Financial Services Authority said some lenders were 'too ready' to repossess customers' homes and not giving them enough of a chance to find the money when they fell behind with their loans.

The watchdog yesterday published the first official insight into the scale of Britain's escalating repossession crisis.

More homeowners are struggling to repay their mortgages

From January to March, 9,152 people lost their homes, compared to 6,471 in the same period last year.

The FSA also warns that 302,000 families are in 'the last-chance saloon', having not made repayments for at least three months.

Unless they can find the money, they too will be taken to court to begin the process of repossession.

While many will borrow from family and friends or taking a second job, others will lose their homes.

Ed Stansfield, of consultants Capital Economics, said: 'With arrears still rising and the economy teetering on the edge of a recession, a substantial further rise in possessions seems all but certain.'

FSA director Lesley Titcomb said more people were 'struggling to meet their mortgage payments'.

She warned they deserved to be treated 'fairly', adding: 'This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession has to be the last resort.'

In a robust statement, the FSA said it may fine lenders or ban directors, for breaches of its rules.

It warned that some specialist lenders, who give mortgages to people with poor credit histories, were 'too ready to take court action'.

A review of 18 lenders was deeply critical of those who did not properly check whether customers could afford their mortgages.

The danger of giving too much money to homeowners was illustrated by Northern Rock yesterday.

Seventy per cent of its repossessions were from customers with its Together mortgage, which allowed people to borrow up to 125 per cent of a property's value.

It was scrapped in February after the bank was nationalised.

Adam Sampson, of housing charity Shelter, said: 'We have reached crisis point in the number of people at risk of repossession and alarm bells must be ringing in Government.

'These figures paint a terrifying picture showing real people living in the shadow of repossession and ultimately homelessness.'

The Council of Mortgage Lenders insisted its members made ' strenuous efforts to ensure repossession was only taken as a last resort'.

Research yesterday showed how lenders were accepting only lowrisk borrowers.

The average deposit last year was 15 per cent, but it has jumped to 23 per cent this year, according to the online mortgage adviser Mform.

As a result, first-time buyers are getting older because few young people have sufficient savings.