The Treasury Select Committee (TSC) will launch an inquiry into Britain’s struggling mortgage market to examine the sharp rise in repossessions and the chronic shortage of affordable home loans for first-time buyers.

The inquiry will review the current forecast on the number of families who could lose their homes this year and examine lenders’ treatment of financially overstretched customers, particularly those considered "sub-prime”.

The TSC will also look into the success of Government schemes designed to reduce the huge numbers of repossessions which are expected this year. Sale-and-lease-back schemes and the availability of mortgages will also come under the spot light.

Written submissions have been requested from banks, building societies, trade bodies or any other interested parties by July 1 and the committee aims to report back before the beginning of August. The Treasury will have two months to respond to its recommendations.

The new inquiry was launched as a prominent economist warned that repossessions will not peak until 2011. Ian Shepherdson said repossessions will reach between 100,000 and 120,000 per year by 2011, as unemployment soars. The Office for National Statistics today revealed that unemployment rose by 232,000 to 2.26 million in the three months to April.

However, the Council of Mortgage Lenders (CML), which has predicted that 75,000 families will lose their homes this year, may revise down the estimate after new figures showed that 12,800 households were repossessed in the first quarter of this year - less than expected.

There are forecast to be 500,000 households at least three months in arrears on their mortgages by December.

First-time buyers are also struggling as the number of mortgages on the market has shrunk considerably since the credit crunch began in mid-2007. There are only 1,265 mortgage deals on the market today, compared to 11,951 in July 2007, figures from Moneyfacts.co.uk, the financial website, shows. First-time buyers also face considerably higher borrowing costs as lender price their mortgage deals on the risk that the borrower might default.

Mortgage lending has slumped to historically low levels as lenders struggle to secure funding from money markets. Mortgage approvals jumped 16 per cent in April, figures from CML show, but remain 28 per cent lower than the same month last year.

The Government has outlined plans to inject £3 billion into Northern Rock so that the state-owned bank can increase mortgage lending by offering £14 billion in new loans over the next two years and break the deadlock in the market. However, it remains on hold while the European Commission decides whether the move constitutes state aid.