Speakers at the BSA annual conference in Manchester cited their concerns over lender forbearance strategies once interest rates rise.

Peter Williams, director at the University of Cambridge Centre for Housing and Planning Research said that once base rate rises, we will see the “restructuring of support for mortgage interest.”

“The biggest arrears prevention strategy has been low interest rates and there are clearly a number of households who have survived their difficulties because of low interest rates. They’re now facing a fall in wages so the position on some lenders back books is worsening.

“That question about what capacity lenders have to modify their loans downstream even further is quite difficult, because I think many lenders will rightly say that they have done a lot of that.

“That again is political tension that will be difficult to deal with. I’m nervous about what may flow if interest rates rise.”

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Robert Gardner, Nationwide’s chief economist said he expects interest rates to rise at the back end of 2013.

In response to Williams, he said: “The Bank of England will only raise interest rates when it feels the economy is strong enough. It will be the strong [economic] outlook that will ultimately provide support for credit quality. Nevertheless, there is a large share of mortgages on variable rates and interest-only, so payment shock is something we need to be aware of.

“Policy makers need to be wary because they need to understand that even a 25 to 50 basis points rise will feel like a lot more now than it did before the crisis. They have to proceed very cautiously as a mistake would be very hard to correct.”