The City watchdog has accused Britain's banks of moving struggling mortgage customers on to more lenient terms to conceal bad debts.

Lender forbearance – where banks shift homeowners onto interest-only deals, extend their mortgage term, or even permit payment holidays – now accounts for 63pc of all troubled home loans, according to the Financial Services Authority (FSA).

Although forbearance can help households, the FSA is concerned banks are using it to flatter their numbers by reducing bad debt provisions.

In a guidance note on "forbearance and impairment provisions", it said: "We believe that there is scope for considerable improvement in firms' interpretation of the disclosure requirements." A spokesman added that "there are concerns" about banks' use of forbearance.

The regulator fears that "where [forbearance] is provided without due care or understanding of the impacts, it has potentially adverse implications for the customer". In one instance, the FSA said, "more than 95pc of customers requesting a conversion to permanent interest-only terms were found to be in financial...........Read more HERE