The number of homes being repossessed has risen to its highest level for seven years as growing numbers of people are overwhelmed by debt, figures show.

Repossessions have risen by 30 per cent over the past year, the Council of Mortgage Lenders says. Although the number affected is still small, compared with the early 1990s, the council says that the problem is likely to get far worse than it had previously thought, as rising interest rates stretch heavily indebted families to breaking point.

Some 14,000 homes were repossessed in the first half of 2007, the council said, up from 10,800 during the same period of 2006.

In a worrying sign of financial strain, the number of mortgages in arrears of three months or more at the end of June was 125,100, up 4 per cent from six months before.

The council said that the proportion of people in arrears who were getting into severe financial difficulty was on the rise. That is a sign that an increasing amount of the market is made up of “sub-prime” mortgages, which are more risky.

In the US, a housing downturn and higher interest rates have led to high levels of defaults on sub-prime mortgages and created a crisis that has caused several mortgage lenders to collapse.

Alan Clarke, an economist at BNP Paribas, said that Britain was unlikely to suffer as widespread a problem because the level of arrears was lower than in America and house-price inflation remained in double digits. He said: “The numbers make unpleasant reading, and it is going to get worse.”

Britons’ disposable income has been squeezed in the past year by high food and energy prices, and by the Bank of England’s five quarter-point increases in interest rates. Loans taken out a few years ago are becoming much harder to repay. Many City analysts believe that another rise, to a base rate of 6 per cent, could come next month.

Karen Ward, an economist at HSBC, said: “In recent years, UK households have taken on astounding amounts of debt. Since the start of the decade, total debt in the UK as a percentage of total disposable income has increased from 100 per cent to 160 per cent, as banks have continually loosened credit standards.”

Data released yesterday by the Insolvency Service suggested that banks were now cracking down on those with heavy debts by refusing individual voluntary arrangements (IVAs), an alternative to bankruptcy that has become popular in recent years.

The number of new IVAs in England and Wales fell by 15 per cent in the second quarter compared with the previous three months, the figures showed. Bankruptcies also fell, but by just 3 per cent. In Scotland, total insolvencies rose by 0.8 per cent.

Mike Gerrard, head of personal insolvency at Grant Thornton, the accountants, said: “It may look as if personal insolvencies have finally reached a plateau. However, evidence points to a peak still being some way off.

“The existing mountain of debt still stands, consumer spending remains unabated and there is a strong likelihood of more interest-rate rises, not to mention previous ones still having to filter through the system, which will cause more individuals to resort to bankruptcies and IVAs.”

Philip Hammond, the Shadow Chief Secretary to the Treasury, said: “Falling incomes and higher taxes are causing real hardship for millions of hard-working families. Rising interest rates, on top of record personal debt, raise the spectre of home repossession for thousands of overstretched home-owners.”

A Treasury spokesman said: “With low inflation, employment at record highs, growth more balanced and strong productivity growth, the underlying trends are positive and in 2007 the economy is strong and strengthening further, with the highest growth forecast in the G7 this year.”