The Council of Mortgage Lenders expects fewer homes to be repossessed in the UK this year than it first thought as lower interest rates and government measures to cap arrears have helped improve the prospects of thousands of home owners at risk.

The CML lowered its forecast for property repossessions in 2009 to 65,000 from its previous estimate of 75,000. But the estimated number is still higher than the 40,000 repossessions seen last year - the highest in more than a decade.

The CML said: “Although the economic backdrop remains challenging, the vast majority of homeowners continue to meet their monthly payment obligations. The large cuts in interest rats have benefitted many, making it easier for households who suffer a loss of income to continue to pay their bills.”

Government efforts to force lenders to negotiate deals with homeowners who have fallen behind on mortgage payments may be curbing foreclosures, with the number of possession orders sharply down in the first three months of 2009.

Data from the Ministry of Justice, released last month, showed 17,054 mortgage possession orders in the first quarter, down 43 per cent from the previous quarter and 39 per cent below that of the first three months of last year.

However, the number of mortgages three months or more in arrears rose in the first quarter to 2.39 per cent of all loans from 1.18 per cent a year earlier and from 1.88 per cent in the fourth quarter of 2008. And it is said that Britain’s lenders are failing to pass on cuts in interest rates to consumers, undermining efforts to get credit flowing around the economy again.

While banks and building societies have cut the interest rates at which they grant mortgages, they are far from matching the Bank of England’s reductions in official interest rates. Meanwhile, interest charged on personal loans, overdrafts and credit cards has risen.