The Council of Mortgage Lenders' (CML) has warned that compounding pressures in the housing sector coupled with high levels of unemployment could lead to rising mortgage arrears and repossessions in 2012.
CML forecasts suggest that home repossession will rise from 37,000 for 2011 to 45,000 in 2012. Property sales are also likely to falter with the CML predicting that just 825,000 homes being sold, the lowest number since records began in 1978.
According to figures released by the Office of National Statistics last week unemployment in the UK has reached its highest level in 17 years, which could leave many households struggling to cope with rent and mortgage repayments.
Research conducted by the housing charity Shelter suggested that one in every 111 households are in danger of eviction due to mortgage repayment or rent difficulties. Not every threatened repossession will result in eviction but the figures are alarming regardless.
CML chief economist Bob Pannell said:
"The weak state of the wider economy and household finances creates a challenging and highly uncertain backdrop for the housing and mortgage markets.
"As a by-product of sovereign debt worries, lenders face challenging conditions in wholesale funding markets, and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year. But, if European leaders navigate a comprehensive and sustainable way through Eurozone problems, current financial market stresses could heal - and the previous pattern of gradual improvement in cost and availability of funds re-emerge - relatively quickly.
"This in turn could have a major benefit on UK growth prospects, and boost household confidence and appetite to borrow."
There are currently 11.2 million mortgages in the UK with the loans totalling at over £1.2trillion.