Jack Straw, the Justice Secretary, has ordered an investigation into a legal loophole that allows lenders to repossess a home without a court order.

The inquiry was announced in response to a High Court ruling that supported a decision by GMAC-RFC, the General Motors mortgage lender, to sell the property of a borrower who was in arrears. It confirmed that mortgage lenders could sell a property without a court repossession order if a borrower fell two months into arrears.

Solicitors and debt charities said that the ruling was a blow to homeowners and had set a precedent by supporting the right of lenders to repossess properties at will.

Frances Walker, of Consumer Credit Counselling Service, a debt charity, said: “This case is shocking and extremely disappointing. The fear is that the practice could become more widespread as the housing crisis worsens.”

The incident prompted the Ministry of Justice to confirm that Mr Straw would look into the implications of Mr Justice Briggs's ruling last month. “Given the current economic situation,” it said, “the Government is working hard to ensure that people losing their homes is a last resort. Jack Straw has asked for advice on the implications of this judgment and will consider with colleagues across Government whether further action is needed.”

The case relates to a buy-to-let landlord. Experts believe it is unlikely that mainstream lenders will exploit the loophole in cases where hard-pressed families are in arrears. However, debt charities fear that some lenders might do so.

John Gallagher, principal solicitor at Shelter, the housing charity, said: “Even where a mortgage possession case does go to court, the law related to mortgages is heavily weighted in favour of the lender and the court has only limited powers to intervene. The law is in need of reform to render it fit for the modern world. We would urge the Government to undertake this reform as a matter of urgency.”

More than 150,000 homeowners were at least three months in arrears in the six months to June this year, about 30 per cent more than in the same period last year. Repossessions are expected to jump by 50 per cent to 45,000 this year and will continue to rise over the next 12 months, the Council of Mortgage Lenders said.

A spokeswoman for GMAC-RFC insisted that if it was a residential home loan it would not have called in receivers. However, it said that in the case of buy-to-let loans there was a long precedent of calling in receivers when borrowers fell into arrears.