New forecast puts Britain on course for worst figures since 90s

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If current trends continue, two million households will enter negative equity by 2010, credit ratings agency Standard & Poor's said in a report 200,000 more than in the last slump.

Standard & Poor's has calculated that by the end of this month 335,000 homes will be worth less than their mortgages. And they predict that by 2010 house prices will have fallen by up to 35 per cent from their peak values, compared with a drop of only 20 per cent in the early Nineties.

The latest forecasts coincide with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments.

Lenders have applied for 80,000 repossession orders and in the first half of this year around 19,000 homes were seized, up 40 per cent on the previous six months. The figure is expected to rise to 26,000 in the second half of the year.

In the nine months to the end of September, Northern Rock, which was nationalised this year, made more than 2,000 seizures, in some cases from borrowers who were only £800 in arrears.

Chris Tapp, director of debt charity Credit Action, said: "What makes these negative equity statistics so worrying is that they come at a time when banks are behaving so unreasonably over repossessions. We are particularly dismayed with the inflexibility of Northern Rock."

Fears that hundreds of thousands could be made homeless have prompted Yvette Cooper, chief secretary to the Treasury, to pledge government support in avoiding repossession. A new law would mean banks will have to offer alternative payment schemes before they can repossess a property.