700,000 'will fail to meet mortgage' as lenders are warned: Treat home repossessions as a LAST resort

More families than ever are facing repossession - but the FSA has warned lenders it must be a last resort

Mortgage lenders have been ordered to treat home repossession as a last resort.

The Financial Services Authority has warned them they risk unlimited fines and other sanctions if they fail to be fair to struggling borrowers.

A letter sent to 280 chief executives this week gives lenders until January 31 to get their act together  -  or risk the full force of the City regulator coming down on them.

The news comes as a survey shows 700,000 homeowners expect to miss a mortgage payment or even to be forced to sell their home next year.

The most anxious age group is 35 to 44. Experts said people of this age are mostly likely to have young children and a large mortgage.

They are the most concerned that they could lose their jobs in the recession. More than 180,000 people have joined the unemployment list over the last year.

The FSA rules are designed to ensure nobody loses their home until 'all reasonable attempts to reach a resolution have been unsuccessful'.

They also include measures to stop lenders harassing customers. They must avoid making 'excessive' phone calls and call only between 8am and 9pm.

Latest figures show the number of repossessions is rising fast. It is expected to hit 45,000 this year, the highest level for 13 years.

The research, from the campaign group Life Trust Foundation, asked people whether they expect to miss at least one mortgage payment in the next 12 months, or even have to sell their home due to a downturn in their finances.

Six per cent of Britain's 11.7million homeowners, equal to about 700,000 households, gave the answer 'yes'.

Eight per cent of 35 to 44-year-olds said they were worried, compared to three per cent of people over 55.

Brian Dennehy, managing director of financial advisers Dennehy Weller, said: 'Their biggest fear is unemployment.

'They feel most exposed to the economic downturn because of their personal circumstances. People in their 20s feel indestructible. People in their 30s, with children, tend to feel the opposite. If they've got debts, it's fine as long as they have a job. But once you are unemployed, you have no buffer.'

The Life Trust Foundation, set up to raise awareness of the financial implications of people living longer, also found concern among people between 45 and 54, many of whom have seen pension funds ravaged by the downturn.

Chairman Lord Hunt said: 'The idea of having to sell a property to fund retirement is becoming a reality.'

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