Banks move to head off repossessions

Banks are set to contact thousands of at-risk borrowers under plans to stave off fears of a huge rise in the number of home repossessions.

The move, under the auspices of the British Bankers' Association, will see banks agreeing to contact borrowers over the coming months, before financial difficulties turn into a full-blown crisis.

It comes amid rising concerns that over-extended borrowers will find themselves in severe difficulties later this year as fixed-rate mortgages expire. Higher interest rates and a dearth of attractive deals, as a result of the credit crunch, mean many people will face sharp increases in repayments.

The demand that banks contact at-risk consumers and work on alternatives to repossessions is set to be made mandatory as part of a revised Banking Code to be published in March. It is hoped it will not only stave off repossessions, but also head off accusations from consumer groups that banks have indulged in "irresponsible lending". Last year Abbey, in particular, faced criticism after it emerged the bank was offeringloans of up to five times' salary.

BBA chief executive Angela Knight said: "Banks will have to adhere to this because this will be a contractual requirement as part of their membership of the BBA. We are not going to wait and watch as consumers get into difficulties.

"We would urge anyone facing difficulties to first contact their bank. This should be their first port of call. But we will also proactively contact them."

Ms Knight said that the code would also demand that banks offer concessions to borrowers who contacted their bank first. She said: "These steps are already seen as best practice by our members, but this will be the first time they become part of the Banking Code."

The Bank of England is under mounting pressure to cut interest rates for the second consecutive month on Thursday. But spread-betting firm Cantor Index rated the prospect of a cut at no more than 50 per cent.