Record low interest rates have helped push the number of repossessions in the UK to the lowest level since 2007, but they are set to soar to 45,000 by the end of the year as unemployment worsens, lenders warned today.
Some 36,200 properties were repossessed in 2011, around 4,000 fewer than had previously been forecast, but continued pressures on living costs are likely to drive the figure back up this year, the Council of Mortgage Lenders (CML) said.
The body put 2011's lower-than-expected results down to interest rates, as the Bank of England maintains the base rate at a historic 0.5% low, as well as lenders' forbearance.
The CML said lenders have been reducing rates temporarily or switching them to interest-only mortgages to help borrowers, as well as extending the dates for when payments are due.
Recent research from Halifax found that mortgage payments for new borrowers have reached their most affordable levels for 14 years, with average payments standing at 27% of disposable earnings, well below the 37% long-term average.
But as consumers come under more pressure, the CML predicts that 180,000 mortgages will be in arrears of 2.5% or more of the mortgage balance by the end of 2012, up from 159,400 at the end of last year.
Around 8,500 properties were repossessed in the fourth quarter of the year, down by 9% from the previous quarter.
CML director general Paul Smee said: "Low interest rates and good arrears management by lenders are helping the vast majority of those borrowers who face difficulties to keep their homes and get back on track.
"This will continue, but in the face of wider economic difficulties and rising unemployment, we are concerned that there will be a higher number of people facing more serious problems in 2012."
Buy-to-let properties accounted for 5,900 of the repossessions in 2011, up from 4,700 in 2010, but arrears rates tended to be lower than in the owner-occupier sector, suggesting greater leniency is being shown to owner-occupiers.
There has been a renewed interest in the buy-to-let market as the rental market saw a boom last year due to the numbers of would-be buyers unable to get on the property ladder, and lenders have been expanding their ranges to attract landlords.
Paul Diggle, a property economist at Capital Economics, said: "The implication seems to be that forbearance is less common for landlords.
"But if banks become unwilling or unable to maintain their lenient approach with owner-occupiers, this would only exacerbate the impact of the weak economy."
The Bank of England has said it expects lenders to tighten their credit criteria this year amid wider economic uncertainty and the fallout from the eurozone crisis.
Despite the number of cheap loans around, analysts have pointed to a general trend of consumers lacking the appetite to borrow amid concerns over jobs.
A recent PricewaterhouseCoopers (PwC) report found that UK families are typically £7,900 in debt from personal loans, overdrafts and credit cards, despite three years of paying them down. The report said UK households remain "among the most indebted in the world".
Mr Diggle said: "Mortgage borrowers have been helped by continued low interest rates, widespread lender forbearance and a labour market that did not get materially worse in 2011.
But he said it was "difficult to envisage a repeat performance" of the low figures in 2012.
The Ministry of Justice also released figures today which showed a slight rise in repossession claims made in the courts in England and Wales in the last three months of 2011, while the number of orders granted fell.
There were 17,890 claims issued in the courts in the fourth quarter of last year, a 1% rise on the previous quarter.
This led to 13,607 repossession orders being made, 2% lower than in the third quarter of 2011. Around 49% of the orders were suspended.
Suspension usually requires the defendant to pay the latest instalment of cash owed, plus some arrears, within a certain period. As long as they comply, the possession order cannot be enforced.
The report said the figures generally have remained "reasonably stable" for the last two years.
The North West had the highest numbers of mortgage claims and claims leading to orders per 1,000 households, reflecting suggestions that northern regions have borne the brunt of economic problems. The lowest numbers were in the South West.