Abbey, Britain's second-largest mortgage lender, believes the continued rise in unemployment - one of the main causes of mortgage arrears - combined with only a slow recovery in house prices, means that repossessions are unlikely to fall below the record levels suffered for the past two years.
Its forecasts suggest that 64,000 homes will be repossessed this year, slightly down on the 69,000 it expects to have been taken back by lenders last year. But it believes that repossessions will total 62,000 in 1994 and 59,000 in 1995. The worst year for repossessions was 1991, when 75,540 homes were taken back. In the 1980s, by contrast, the average was just over 14,000 a year.
Abbey's forecast is based on the prediction that house prices will fall by a further 3 per cent this year and will then rise by 2 per cent, 5 per cent and 7 per cent in the following three years. That means house prices will not recover to their 1988 levels until the second half of the decade, leaving large numbers of people with negative equity - or houses worth less than the mortgages secured against them.
It also expects unemployment to continue rising until 1994, when it will peak at 3.3 million, 400,000 higher than current levels.
Margaret Schwarz, senior economist with Abbey, believes the slow recovery in prices is one of the main reasons for the high level of repossessions. 'In the 1980s, repossessions were very low because, if you couldn't pay the mortgage, you could always sell the house to get rid of the debt.' Low inflation, however, means that house prices are falling in nominal, as well as real terms and borrowers in difficulties are unlikely to be able to raise enough to pay off the mortgage in full.
Halifax Building Society, Britain's largest mortgage lender, does not publish formal forecasts but David Gilchrist, its general manager, believes Abbey's are 'not wildly out of line'. Halifax is expecting a small recovery in prices in the second half of the year, and a pick-up in the number of transactions. But it does not expect volumes to recover to 1.5 million, their long-run average, until the middle of the decade.
Because repossessed houses are generally in poor condition and have to be sold cheaply, they are likely to remain a depressing influence on the housing market. But there are signs that the drop in interest rates since Britain left the exchange rate mechanism has sparked a recovery in house sales.
The National Association of Estate Agents said December was the busiest month for three years. That is borne out by Abbey National, which said December - traditionally a quiet period for the housing market - was the best month of the year for mortgage applications, although the figures may have been distorted by homeowners switching to fixed-rate mortgages.
John Bagnall, chairman of the Building Employers Confederation, yesterday called for a cut in interest rates of at least 1 percentage point and urged the Chancellor not to raise taxes in the Budget. 'The construction industry will start 1993 still firmly in the grip of its worst recession since the 1930s,' said Mr Bagnall.
'The BEC will shortly be analysing the results of its winter state of trade inquiry and I fully expect them to show a continuing decline in output and employment which will take the construction jobless figure past the 450,000 mark.
'But I also hope, later in 1993, to see evidence that the recession is at last beginning to lose steam.'