One million homeowners face a 60 per cent jump in mortgage rates

Analysts fear the impact will result in a surge in repossessions.

The Council of Mortgage Lenders is so concerned that it has taken the extraordinary step of suggesting that some homeowners should sell their property rather than risk losing it.

Any forced sales could deal a blow to confidence in the property market, which is suffering a marked slowdown.

It comes as the UK's third largest buy-to-let mortgage firm said it was facing funding uncertainties today.

The update from Paragon - whose costs have soared following the summer credit crunch - alarmed investors as shares in the company tumbled by almost half.

The Solihull-based firm said: "The deep turmoil in the credit markets is affecting the normal financing activities of the business."

Paragon has no depositors and raises its funding by securitising - bundling up and selling on - its loans. Cash for new lending is also financed by a £2.3 billion "warehousing" facility from a banking syndicate.

Michael Coogan, director general of the CML, is particularly concerned about the 1.4million people reaching the end of cheap fixed-rate loans.

They took out mortgages when interest rates were far lower but will have to switch to more expensive deals in the next 12 months. "There is a potential payment shock of anywhere between 30 per cent and 60 per cent for many," he warned.

Many could switch to new fixed or discount rates, but some will have no choice but to move to costly variable rates.

In a worst case scenario, someone currently paying £890 a month on a £150,000 mortgage fixed at five per cent could see the figure rise to £1,424 a month on a variable rate.

Mr Coogan stressed that there were other options, such as agreeing with lenders to cap payments for a set period.

The CML is also calling on the Bank of England to cut base rates "sooner rather than later" from 5.75 per cent to ease the pressure. The Council pointed to the double impact of the run on the Northern Rock bank and the credit crunch hitting families.

These followed the collapse of thousands of sub-prime - or high-risk - mortgages in the U.S.

"We are facing very difficult times," said Mr Coogan. "We have a number of uncertainties in the market.

"We've effectively had two seismic events that we've still not recovered from - the earthquake of the capital markets closing because of the problems in the U.S. subprime market and the earthquake of the Northern Rock bank run."

Mr Coogan said those with a suspect credit record face big problems, including falling into arrears and repossession. He said they will need to protect-themselves, which could mean selling up and renting.

Speaking to business information company Cantos, Mr Coogan said: "They're clearly most at risk of repossession. They can avoid it by seeking to sell and becoming a tenant."

Banks and building societies have redrawn lending rules in the wake of the global credit crunch, leaving a rising number of buyers being rejected as high risk, or sub-prime.

These people are being forced to sign up with specialist lenders, which impose ruinously high interest rates.

Mr Coogan also suggested the Bank of England is lagging behind the U.S. Federal Reserve which has cut interest rates by 0.75 of a percentage point in recent months.

The CML said Britain's property market slowdown will run through 2008 and partly blames the introduction of Home Information Packs in August.

FIRST-TIME buyers are prepared to move to a cheaper area, sell their possessions and even take on three jobs in order to afford a home, a survey showed yesterday.

One in four trying to get on the property ladder said they were considering relocating to a cheaper part of the UK, while 16 per cent would move to a country where houses are less expensive.

The number who would be prepared to sell items of sentimental value has doubled from 10 per cent five years ago to 20 per cent now, according to the YouGov survey for Abbey.

Around 39 per cent of first-time buyers said they planned to take on a second job to help them raise the cash they needed, while 16 per cent claimed they were looking for a third job.