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The Financial Services Authority (FSA) has warned that any increase in unemployment,interest rates or further falls in house prices could force millions of overstretched families into mortgage arrears.

The FSA chairman Stated

This recession is really quite different than the one in the early 1990s.We have households which are more indebted than they were in the past and that creates a problem.

Some experts believe that interest rates will remain low for a long time. some have predicted that the Bank Base Rate will not rise above 1% for the next five years.

However, others predict that interest rates will have to start rising at some point this year, as the economy recovers and inflation becomes a threat.

The FSA warns that if interest rates start rising too soon, this would increase the cost of debt before household incomes have recovered fully.

 The high level of debt income has left many households vulnerable to property price, income and mortgage interest rate shocks.

The report warns that this could cause increased mortgage defaults, arrears and ultimately repossessions. Around 45,000 people lost their homes in 2009 – 15% more than the previous year, but well below the 75,000 forecast.

The better than expected figures were due to the low interest rates, combined with an undertaking by mortgage lenders only to resort to repossession as a last resort.

If interest rates were to rise soon, We think we could see a very long tail for arrears and repossessions with high numbers of people losing their homes stretching back for many years to come.

People will realise that more of their income is being taken up by higher taxes or greater debt levels.

Any sudden changes in the economy will seriously widen out the number of people that are going to be affected.