More than a million homeowners with interest-only mortgages are likely to reach the end of their loan period without repaying their debt.
This is according to new report published by the Financial Conduct Authority (FCA), which found that although 2.6 million people own the mortgages, just 1.3 million will be able to cover the final bill.
As a result, the body is urging lenders to warn borrowers when they face a shortfall and has produced guidelines on how they should be treated.
Speaking to the BBC, chief executive of the FCA Martin Wheatley said many of these mortgages were taken out before the recession, when there was more optimism regarding house prices and wages.
He remarked: “My advice to borrowers is not to bury their head in the sand. This report is a call to action.”
At present, just one in ten mortgage owners – around 260,000 people – do not have a repayment plan and could face having to sell their homes.
Householders need to pay back the full amount of their loan when the mortgage term matures, which is usually after 25 years.