Up to five million homeowners could be in negative equity by the end of this year if house prices continue to fall, research has claimed.
An estimated 3.8 million people either already owe more on their mortgage than their home is worth or are very close to doing so.
A further 1.2 million homeowners are expected to be in negative equity by the end of the year if house prices drop by a further 10% to 20%, according to research group GfK NOP.
The group also claimed that around 14% of people who are already in negative equity may be in financial difficulties, as they have at least three other forms of debt, such as an overdraft, loan or credit card on which they repay only the minimum balance each month.
Single people aged between 25 and 34, young couples and younger families are most likely to find themselves in negative equity, as these groups are likely to have taken out mortgages with high loan to value ratios near the peak of the housing market.
The group said anyone who took out a mortgage and around half of those who have remortgaged since 2005 were likely to either already be in negative equity, or be very close to it. It also warned that the retirement plans of an estimated 7.2 million who were planning to use their home as part of their pension, were likely to be hit by falling house prices.
Andy Thwaites, director of insight at GfK Financial, said: "The shift to negative equity has the potential to be a mammoth welfare disaster for the nation, particularly when so much of the population has recently relied on the capital appreciation in their home to supplement their lifestyle, consolidate debts and fund retirement.
"The reality is that if there are further job cuts, the problem will become significantly worse."
The research, which was based on responses from 60,000 people, also found that only one in 10 potential first-time buyers had a deposit of at least 10% that is currently needed to get on to the property ladder.
It said only 12% of people aged under 40 who did not currently own their own home had £16,000 or more in savings - 10% of the average property price of £160,000. At the same time only one in 10 of these people would consider taking out a mortgage during 2009.
