Gordon Brown admitted for the first time yesterday that the country was heading for a recession as ministers acted to reduce soaring property repossessions.

As share prices tumbled and the value of the pound hit a five-year low, the Prime Minister, who has previously avoided using the highly charged “R-word”, told MPs that he backed a similar assessment to that given on Tuesday night by Mervyn King, the Governor of the Bank of England.

“Having taken action on the banking system, we must now take action on the global financial recession, which is likely to cause recession in America, France, Italy, Germany, Japan and – because no country can insulate itself from it – Britain too,” he said in the Commons.

He insisted that his “undivided attention” was on helping families and businesses, and announced that courts would be given new guidance to halt or adjourn actions unless all alternatives had been “fully examined”.

About 18,900 people lost their homes during the first half of the year, 48 per cent more than during the same period of 2007 and the highest figure since 1996.

The level of repossessions is expected to continue to rise during the second half of the year, reaching 45,000 for the whole of 2008, 50 per cent more than in 2007.

The new guidance sets out the steps that lenders will have to take before bringing a repossession claim to a court, to ensure that it is a last resort.

Lenders who proceed with a court action will have to show that they have tried to discuss and agree alternatives with borrowers who have run into problems keeping up with their mortgage repayments, such as extending the term of the mortgage or deferring interest payments, detailing precisely what they have done.

Northern Rock, a state-owned lender, has been criticised by debt charities for “aggressively” pursuing homeowners struggling with mortgage bills.

The Government also announced that it was proposing bringing sale-and-rent-back companies under the regulation of the Financial Services Authority, and it will be publishing a consultation paper on the issue.

The move follows a damning report on the sector issued last week by the Office of Fair Trading, in which it cautioned that regulation was needed urgently to protect vulnerable consumers. The schemes enable people who face losing their home to sell it to a company and then rent it back. Homeowners are often paid only a fraction of what their property is worth and many tenancies are guaranteed for only six to twelve months. Some companies impose rent rises or evict people after a short period.

Yvette Cooper, Chief Secretary to the Treasury, said: “We need to make sure we help those who might be hardest hit in the tougher times ahead, ensuring that repossession is the last resort, not the first.”

Other moves to help homeowners include giving guidance to local authorities on housing benefit eligibility, particularly for sale-and-rent-back tenants, expanding free legal representation in the county courts for people facing repossession and expanding free debt advice.

Mortgage lenders said that they already treated repossession as a last resort. A spokeswoman for the Council of Mortgage Lenders said: “We believe in the vast majority of cases that repossession is already the last option. These new rules reinforce what is already happening across the industry.”

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