Repossessions 'to double' if interest rates go up again

More than 115 families a day will lose their homes because they cannot afford soaring mortgage costs and other debts, it said.

This would mean repossessions rose from 17,000 a year to almost 43,000 in 2009.

Economists agree that an interest rate rise is "a cast-iron certainty" because of rampant inflation. It would be the fourth interest rate rise in less than a year.

And this is enough to trigger an affordability crisis, suggests the report from the economic consultancy Businesss Strategies, part of the financial information firm Experian.

Dr Neil Blake, managing director and author, said: "Even if rates go up only by a quarter point in May, we expect severe increases in financial stress."

The standard rise in interest rates is a quarter of a point.

However, if rates rise more sharply from

5.25 per cent today to 6.25 per cent, Dr Blake forecasts 55,000 repossessions in two years' time. A typical mortgage taken out today is just more than £150,000, the highest since records began.

Mark Sands, director of personal insolvency at the accountants KPMG, said repossessions could be caused by "a dripby-drip problem".

"An extra £5 on their mortgage, £10 on their council tax bill and so on is really putting the squeeze on people who are financially over-stretched already.

"These people have a choice - they either stop paying their mortgage, or they stop paying their credit card bills.

"This is why we are seeing rising levels of both repossessions and personal insolvency.

"We think up to 150,000 people could become insolvent in 2007.

Meanwhile, the Bank of England warned that Britain's £1.3trillion personaldebt mountain has left families vulnerable to an "abrupt" economic downturn.

Household debt is now 150 per cent of average annual incomes, compared with about 100 per cent in the late 1990s, it said.

In its bi-annual Financial Stability Report, the Bank urged lenders to rein in "lax" lending practices to minimise the risk of a financial meltdown. Official figures show that repossessions, which peaked at 75,540 in 1991, have been rising sharply over the last three years.

They jumped 65 per cent in 2006 to a three-year high of 17,000, according to the Council of Mortgage Lenders.

But Experian's report predicts this is just the beginning.

The Royal Institution of Chartered Surveyors said it expects more mortgage lenders to start repossession proceedings.

Economist Joshua Miller said: "With a further interest rate rise looming on the horizon, those with large variable-rate deals will start to feel the strain of repaying their loan.

"The number of homeowners entering the first stage of the repossession process will pick up as the rate hike bites into household finances."

The Council of Mortgage Lenders also forecasts a rise in repossessions but does not think the increase will be as dramatic as other experts.

It points out that the majority of homeowners have opted for fixed-rate mortgages in recent months.

These protect them against future rate rises.

A spokesman said: "Our forecast is for 18,000 repossessions this year and next year, less than a quarter of their peak level in 1991.

"Even if the prospect of higher-than-expected interest rates pushes up these forecasts, we would expect the effect to be muted.

"Lenders only ever take possession as a last resort, and will do everything possible to avoid it."

A "severe" crisis in household finances could wipe billions of pounds off the balance sheets of the major banks, the Bank of England added.

It advised banks to take lessons from America's recent "sub-prime" mortgage crisis, in which lenders collapsed after borrowers with poor credit ratings defaulted.

"The recent distress in the U.S. sub-prime mortage market provides a warning of how quickly credit quality can deteriorate following a period of lax credit standards."

Earlier this week, the Bank warned that the era of booming house prices and low inflation could be coming to an end.

It said: "We cannot guarantee that the next ten years will be so 'nice'."

This is technical jargon - an acronym for "non-inflationary consistently expansionary -used to describe economic stability.