Mortgage firms rush to repossess homes as families feel credit crunch

Britain is facing its own sub-prime loan crisis as "aggressive" mortgage lenders rush to repossess thousands of properties, it is claimed today.

Firms specialising in loans to those on low incomes or with a risky credit history are taking a hardline approach when customers fall behind on payments, says Citizens Advice (CA).

The collapse of such sub-prime mortgages in the U.S. was the catalyst for the global credit crunch that has left banks nursing huge losses and damaged the finances of British consumers and the economy.

Some industry analysts suggest repossessions in this country could hit 70,000 next year - the highest since 1991.

The CA claims the crisis has been fuelled by the finance companies which have sold expensive home loans that were "doomed to fail".

The alarm was sounded as the Conservative leader called on lenders to be "socially responsible" and help homebuyers who fall into arrears.

David Cameron is particularly worried about 1.4million buyers who face a "payment shock" when their cheap fixed-rate deals end in the next 12 months.

He suggested lenders should find ways to lessen the impact of a predicted £200 a month increase in average repayments.

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The CA report, which looked at 1,200 cases, reveals how the dream of home ownership has turned sour for many people on low incomes.

Its research has found that as many as 770,000 people have missed at least one mortgage or secured loan payment in the last 12 months.

The CA study, Set up to Fail, found that dubious advice from brokers, irresponsible lending and an aggressive approach to those in arrears is driving an increase in court actions for repossession.

It claims sub-prime lenders have handed out loans to many people on low incomes or with a patchy credit history that they cannot repay.

CA chief executive David Harker said: "Our research suggests that many aspiring home owners have been mis-sold unsuitable and costly loans that are doomed to fail from the start.

"Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it's clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong.

"Far from providing housing security and a valuable asset, home ownership has proved a fast track to debt and homelessness for many vulnerable borrowers on low incomes."

The CA found sub-prime lenders are quick to take court action for relatively small amounts of arrears.

The charity claims they are failing to abide by laws that require them to treat customers fairly. It says these rules need to be more rigorously enforced.

The charity also wants to see a regime that ensures court action for repossession is only used as a last resort.

Mr Cameron told the Council of Mortgage Lenders (CML) yesterday he supports this approach.

"The last thing any of us want to see is the type of housing market difficulties that are taking place in the U.S ... There, a million homeowners are in the process of having their house repossessed," he said.

He added: "Where borrowers are struggling to cope with the sudden-hike in repayments, I want to see banks and building societies help overburdened mortgage holders manage the transition to higher interest rates."

The CML dismissed the Citizens Advice analysis as "simplistic" and "sensationalist". It denied sub-prime lenders were rushing to repossess.

CML chief Michael Coogan said: "This report is in no way typical of the vast majority of cases where lenders work constructively with borrowers to get them over periods of financial difficulty and keep them in their homes."