Bleak predictions from City watchdog

Growing numbers of consumers are likely to face debt repayment problems in 2008 according to a report by Britain's financial watchdog.

The Financial Services Authority's (FSA) report on the financial risk outlook for 2008 suggests it will have its work cut out over the year ahead as a slowing UK economy hits businesses and consumers.

It has warned that more than one million mortgages are a "cause for concern".

Lyndon Nelson, the FSA's head of financial strategy and risk, said: "It is not necessarily the affordability of the mortgage. It is their other debt.

"Consumers with other borrowings in addition to the mortgage are struggling, but we are unsighted on their other borrowings."

At the same time the FSA said there was a risk that interest rates on mortgages could increase, reducing consumers' disposable income and further increasing the pressures on affordability.

As well as higher borrowing costs, many consumers are also likely to face problems as a result of lenders reducing the proportion of a property's value that they are prepared to advance.

This could leave homeowners finding it increasingly difficult to obtain a mortgage, while the cost of borrowing could also rise significantly.

The FSA's report said growing numbers of consumers were likely to face debt repayment problems during 2008, meaning the number of mortgage repossessions, bankruptcies and Individual Voluntary Arrangements could rise further.

It also predicted that stock market turmoil and an economic slowdown could spark rising levels of financial crime across the country.

It has warned that tighter economic conditions may lead to an increase in market abuse and fraud as cash-strapped firms, employees and consumers come under pressure.

© Independent Television News Limited 2008. All rights reserved.