FSA predicts rising tide of mortgage rejections and repossessions

City regulator the Financial Services Authority (FSA) has issued a stark warning to consumers and lenders that they face tough times in 2008.

Clive Briault, the FSA's retail managing director, told a Council of Mortgage Lenders conference last Tuesday that because of the credit crisis now gripping the world money markets, people with poor credit histories will now find it harder to gain acceptance for a home loan.

What's more, Mr Briault said that 1.4 million people who are coming off a fixed-rate mortgage face a sharp increase in repayments as the effect of five interest rate rises between July 2006 and August 2007 hits home.

As a result, repossessions are likely to rise as homeowners find it harder to meet their repayments.

It's not just consumers who will be in the firing line; lenders could find that the credit crunch gets still tighter in the new year.

"There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks," said Mr Briault.

Problems raising cash on the money markets led to September's crisis at Northern Rock, and now the FSA says that lenders must have "tested business plans" in place to ensure they do not go the same way as the beleaguered north-east bank.