Interest-rate rise 'would see flood of house repossessions'

The warning came from Richard Banks, chief executive of UK Asset Resolution, the body which ran mortgage bail-outs during the banking crisis.

He also said a Labour plea to lenders to keep borrowers in their homes was forcing many even deeper into debt. It is estimated that 23,000 mortgage-holders are more than six months behind with their payments.

Mr Banks said: "If you don't do something about it, you can see a tsunami.

"If you don't get into the hills you could get drowned by this. If you don't manage this properly, it could get very messy."

UK Asset Resolution was created to run the nationalised mortgages of 750,000 customers from Bradford & Bingley and Northern Rock.

However, a Bank of England committee member yesterday said an interest rate rise would not send home repossessions rocketing.

Professor David Miles said he was "not so pessimistic" about the extent that arrears and repossession would rise.

But Graeme Brown, director of Shelter Scotland, the housing and homelessness charity, said: "Even for those people who have managed to stay afloat so far, we know only too well that just a small increase in monthly outgoings will be the trigger that finally pushes them over the edge into a spiral of debt, repossession and possible homelessness.

"If interest rates do rise, we expect a significant increase in demand for our advice and support services - whether housing and homelessness, money or legal."