Britain could be heading for a United States-style mortgage crisis as almost one and a half million people see their mortgage repayments rocket by £140 a month next year, a report out today says.

Increased housing costs are likely to force people to use their credit cards for everyday expenses, as happened in the US in the wake of its sub-prime mortgage problems, according to an annual review of the credit card industry by PricewaterhouseCoopers (PwC).

Meanwhile, the latest survey from Lloyds TSB Corporate Markets shows that rising food and oil prices, coming on top of increasing mortgage payments, are already hitting consumer confidence.

The bank’s survey, out today, found that a record 81 per cent of respondents expected prices to rise further in 2008. The downturn in consumer confidence will come as a blow to retailers, who expect Christmas sales to hit £12 billion this year, up 5 per cent on 2006.

Much of these sales, however, are expected to come from increased store space, the British Retail Consortium (BRC) said. Stripping out the effect of new store openings, growth could be less than 3 per cent this Christmas and much of it is likely to be achieved by heavy discounting.

Kevin Hawkins, director-general of the BRC, said: “If retailers do see a boom this Christmas, it’ll be followed by a slump in spending as consumers really start to feel the pinch and tighten their belts.”

More than 1.4 million people will see their two-year fixed-rate mortgages move to variable rates in 2008. “While some people will remortgage and others may have made capital repayments against their mortgage, the analysis shows that if mortgage customers do not refinance they are likely to face a significant increase in their monthly mortgage payments,” PwC said. The report estimates that fixed-rate mortgages taken out in January 2006 will rise by £140 a month on average in 2008.

According to information published by the US Federal Reserve, the use of credit cards rose after the American sub-prime crisis because people borrowed more to cover normal living expenses. “There are signs we are witnessing the same in the UK,” PwC said.

Interest payments for mortgages as a percentage of income are already at five-year high. The latest figures, for June 2007, show that Britons spend 17.7 per cent of income on their mortgage, up from 11.6 per cent in 2002.

Richard Thompson, a partner at PwC, said that it was too soon to know whether a further increase would push Britain into a US-style mortgage meltdown, but he said that the issue was “clearly a concern”.

A survey by the BRC with Nielsen found that individuals would spend, on average, £435 on Christmas gifts this year, up 12 per cent. Each household will spend £169 on Christmas food and drink, a rise of 4 per cent.