Mortgage lenders predict that next year 500,000 people will fall behind with mortgage repayments as the credit crunch makes personal finances harder to manage.

According to the Council of Mortgage Lenders, as homeowners struggle with mortgage arrears more people will face having their homes repossessed. The group predicts that next year repossessions will reach 75,000, 67% higher than this year's total of 45,000.

However, the group said that even though lenders have committed to working with homeowners to help them avoid losing their homes, there would be an "inevitable increase" in the number of repossessions as the economic downturn worsens and more people suffer job losses.

As a result, banks will continue to lend cautiously and the group expects fewer house sales to take place, with only 700,000 transactions expected throughout the year, down from from 900,000 this year.

As lending decreases the CML expects net lending, which strips out repayments and people remortgaging, to fall to minus £25 billion next year for the first year since records began in 1964. These figures are well below this year's net lending of £40 billion, and much lower than the £108 billion advanced in 2007.

The figures have led economists to question how long the economic downturn will continue.

David Page, of Investec Securities, said: "If net lending does prove to be as low as that, we really would be looking at a severe downturn. The pace of house price declines [this year] could also be repeated."

Ray Boulger, senior technical manager at John Charcol, said: "The figure is much worse than we were anticipating and emphasises why the Government needs to intervene."

Mr Boulger said the only way lending will increase is if the proposals put forward by Sir James Crosby in his review of mortgage finance are implemented quicker than expected.

He added that the only major lender looking to increase net mortgage lending in 2009 is HSBC.

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